Chapter 04 – Trauma cover

Trauma insurance is a form of insurance that pays out if an event occurs, regardless of the consequences of that event. For example, if an individual suffers a heart attack which does not kill them and which does not render them totally and permanently disabled, then the individual would not receive a benefit from a term life/TPD policy.

The insured event does not have to be a discrete occurrence such as a heart attack. It can be the diagnosis of an illness such as cancer. (In fact, cancer is the most common reason for a claim to be made on trauma insurance). 

Insured events such as a heart attack or cancer can create a situation where a person experiences a loss of income and/or significant expenses (such as hospital treatment, modifications to the home, etc.), but for which life cover and TPD do not insure. Trauma insurance allows a person to insure themselves against the financial consequences of such an event.

Trauma insurance allows a person to receive a benefit if they contract a specified illness or experience a specified event. The list of specified illnesses and events varies from policy to policy. The insured person does not have to prove that the event had serious consequences (such as becoming permanently disabled) to receive a benefit. They need only to prove that the specified illness or event occurred. If they do this, then they will receive a lump sum. This lump sum is also usually specified in the policy.

Most insurers have established criteria by which they decide whether a listed trauma has occurred. This may be something like the presence in or absence from the blood of some particular ‘marker’ of an illness. A marker is a physical sign that an illness or injury has occurred. Different insurers do use different criteria, meaning that the same event may not be insured by two insurers. 

Most trauma policies require the insured person to live for a designated period (usually 14 days) after the event. That is, if a person suffers a heart attack that kills them, the insurer does not have to pay a trauma benefit to the deceased’s estate (they may have to pay a death benefit if the individual also had a term life policy).

As with term life insurance, it is usually possible to combine trauma insurance with term life insurance and/or TPD insurance.

Who uses trauma cover?

Trauma cover is typically less popular than life cover or income protection. This is because many people also have things like health insurance which covers some or all of the costs of getting sick, or income protection cover which reimburses them if they lose income due to an illness or injury. Nevertheless, there are times when trauma cover is warranted and you should discuss whether you need this cover with your financial adviser.

To learn more about Trauma Cover, please visit the ASIC website here.

The Dover Group