Take a moment to think about this: what would you do if you were diagnosed with cancer today? What would you do if you needed to be off work for a year or two during your recovery because of chemotherapy and stress? How would you pay for your treatment as well as your everyday living expenses? This is a tough topic to discuss because most of us probably know someone who has been through this exact scenario and have seen how hard it is. But when you consider the steady expansion of Australia’s life expectancy, currently at 82.1 years, it’s easy to see how the risk of developing a debilitating or even incurable illness rises as we continue to live longer. Currently, 1 in 4 women and 1 in 3 men risk developing cancer before the age of 75 here in Australia, making it a topic that needs some thought (Statistics from Cancer Council Australia).
When people are diagnosed with a critical illness, few have any idea of what costs may be involved, and what funds they may need during their illness.
“People often get a diagnosis and are thrown into financial chaos,” says Tapel Cafer, Director and Senior Financial Advisor at Complete Financial Balance. The cost of serious illness can be indirect, deriving from the loss of income or that of your partner, or direct, caused by the necessary lifestyle changes and rehabilitation costs.
Although Trauma Insurance (also known as Critical Illness Insurance) will not make your illness disappear, it is designed to help you with your direct and indirect medical and rehabilitation costs, and employment changes as a result of your trauma. Yet, “A surprising number of people don’t know about critical illness or trauma insurance policies,” says Tapel Cafer, yet statistically, trauma insurance is one of the insurance policies you’re most likely to use.
What Is Trauma Insurance?
Trauma insurance is a tax-free lump sum that is paid to people who suffer from a list of about 35 illnesses. It is paid on diagnosis of the condition. The idea is to cover expenses that aren’t covered by health insurance, such as the costs of some treatments, carers, rehabilitation and lost income.
Unlike life insurance, where the benefit is paid to your beneficiary upon your death, trauma cover ensures that you receive payment upon the confirmed diagnosis of your medical condition. The payout comes in when you need it the most, and can be used at your own discretion to pay off your medical expenses, use it as a daily financial stream, or ease off the financial burden that is on you or your family during the time of your illness. “The medicine that financial relief provides during times likes this is so valuable,” says Tapel, because while technology advancements have brought an increased survival rate for some severe medical conditions, expenses that arise from specialised medical treatments, long hospital stays, and time off work can put great financial AND emotional strain on the individual and their family.
Depending on the level of cover that you have, health insurance can cover some hospital expenses and medical treatment. However, it does not provide coverage for additional expenses incurred through rehabilitation following a major medical event. Certain ongoing needs such as rehabilitation, equipment and home modifications, therapy and nursing care often fall outside the scope of your health cover and you will have to afford these costs out of your own pocket.
What’s the Difference between Trauma, Income Protection, and TPD?
Unlike TPD and Income Protection insurance, where you have to satisfy a certain level of physical disability in order to claim, trauma insurance pays out on diagnosis. If you are diagnosed with one of the listed medical conditions in your policy (usually 40+ conditions), your policy will pay out, regardless of how quickly you recover.
Examples of this difference include a mild heart attack or having a melanoma. You could be back at work within a few days, so while your TPD insurance or Income Protection insurance would not provide a benefit, your Trauma insurance would pay.
But trauma insurance is the least popular of the life insurance policies. The premiums are expensive because a person is more likely to suffer a trauma than a condition that meets the test for total and permanent disability, it is not tax-deductible and it can’t be put through superannuation.
What are the benefits of Trauma Insurance?
Trauma cover is a form of protection that can really benefit individuals who perform household duties on a full-time basis. While they may not get paid for what they do, losing a stay-at-home parent to an illness or injury can have devastating effects, both emotionally and financially, when you have no other insurance cover. If the homemaker is rendered unable to do their normal jobs, then the normal scenario sees the primary income earner taking time off work to help. This can have significant financial impacts.
For primary income earners, trauma insurance can also provide you with financial support while you take time off work to recover, without having to worry how you and your family can keep on top of your financial commitments. It is always important to consider your personal circumstances and financial situation when making any decisions, so make sure you talk to your financial advisor to see if trauma insurance is appropriate for you.
This article is for general information purposes only. It has been prepared without considering your objectives, financial situation or needs. You should, before acting on the information, consider its appropriateness to your circumstances.