What would you do if you were diagnosed with a serious medical condition and were unable to work? How would you and your family cope financially?
Trauma cover acts as a financial safety net while you recover from a severe illness or injury. It provides a lump sum payment to help you cover the costs of any treatment and lifestyle changes, as well as taking care of your regular living expenses.
Here are three things you should know about how it works.
What you’re covered for
When you take out trauma cover, your Product Disclosure Statement (PDS) will include a list of medical conditions your policy covers. It’s a good idea to spend some time reviewing these definitions to make sure you have the right amount of cover for your needs.
Trauma cover is a lump sum payment designed to cover medical conditions that would have a major impact on your life. This might include an illness or injury that requires costly treatment or rehabilitation and has a long recovery period, or a condition where you’ll need to make significant lifestyle changes.
This means your policy probably won’t cover a minor medical issue, even if it is a very similar to a more serious medical condition. For example, there are big differences in types of skin cancer. If you’re diagnosed with skin cancer that hasn’t spread, your treatment might be a single procedure. In contrast, a malignant skin cancer may require months of chemotherapy or radiotherapy.
For this reason, your PDS will specify how severe a condition needs to be for you to make a claim. And what percentage of the sum insured you can claim for, depending on your diagnosis.
Note that trauma insurance isn’t medical insurance, so it doesn’t automatically pay for your medical expenses.
Claiming on your cover
When making a claim, it’s important to know that some medical conditions aren’t covered if they happen within 90 days of applying for trauma cover. Your cover is also unlikely to pay a benefit if the insured event is caused directly or indirectly by an intentional self-inflicted act or attempted suicide.
However, one of the benefits of trauma cover is that you may be able to make multiple claims over your lifetime. Most policies offer a reinstatement option which allows you to restart your cover after a claim payout, typically with a waiting period of 12 months. Your reinstated policy usually won’t cover you for the same medical condition as your claim or a related condition, but you’ll still receive cover for other eligible medical conditions. Reinstatement is an extra-cost option that must be in place before the claim occurs.
To find out more about what your trauma cover includes and excludes, check the PDS or speak to your financial adviser.
Linking your insurance policies
When you take out trauma cover, it can be either a ‘stand-alone cover’ or a ‘linked cover’ that’s connected to your life insurance or total and permanent disablement (TPD) cover – or both. By linking your cover, you can lower your premiums; however, linking also impacts your total sum insured.
Let’s say, for example, you have a $300,000 trauma cover linked to $800,000 life cover. If you make a claim on your trauma cover and receive $300,000, it will reduce your life cover by the amount paid out – leaving you with $500,000 of life cover.
Depending on your situation and policy, you may be able to buy back the extra life cover in the future. Buy-backs can be extra-cost options that must be in place before the claim event happens.