Key Takeaways
- Trauma insurance pays a lump sum if you have a serious illness or injury (e.g. cancer, stroke, heart disease).
- It’s not the same as income protection insurance or health insurance, but it can work alongside both.
- It’s no longer available through superannuation (for new policies), so it needs to be taken out with a provider.
A sudden health crisis can change your life in an instant. Far too many Australians have been dealt a cancer diagnosis, experienced a stroke or fallen victim to a heart attack. And the impact isn’t just physical or emotional – it can also be financially devastating. That’s where trauma insurance comes in.
What is trauma insurance and how does it work?
Also known as critical illness or recovery insurance, trauma cover gives you a one-off lump-sum payment if you’re diagnosed with a serious illness or injury as defined by your policy. The payout can help support your recovery and give you some financial relief while you take time off work or adjust your lifestyle.
Unlike income protection insurance, which pays a monthly benefit to replace lost income, trauma insurance gives you the flexibility to use the lump sum however you like – whether that’s to cover out-of-pocket medical costs, hiring in-home care, paying down debts or simply giving you a bit of breathing room while you recover.
What does trauma insurance cover?
Most trauma insurance policies in Australia cover major health conditions like cancer, heart attack, stroke, coronary artery bypass surgery, major head injury, kidney failure and multiple sclerosis. Some policies also include conditions such as dementia, organ transplant and severe burns.
The number and types of conditions covered will be different depending on your preferred insurer. Some providers also offer partial payments for earlier stages of certain illnesses. Bottom line: make sure you always review the product disclosure statement (PDS) to understand exactly what’s included and excluded, as well as how the conditions are defined.
One thing trauma insurance doesn’t cover is mental health conditions. If you’re concerned about covering mental health-related expenses, you will need to take out other types of cover.
Who should get trauma cover?
One question that many Australians are asking these days is: “Should I get trauma cover?” The answer depends on your personal circumstances – everything from your financial responsibilities to your lifestyle and any existing insurance you may have.
If you’re the primary breadwinner in your household, self-employed or don’t have much in terms of emergency savings, then trauma insurance could be a huge financial support when you need it most. It’s also worth considering if you don’t have a large support network to fall back on.
Even if you have income protection insurance, trauma cover can still add plenty of value. Income protection only replaces up to 70% of your income on a monthly basis – and that’s after a waiting period. In contrast, trauma insurance pays a tax-free lump sum shortly after diagnosis (once approved), which can be used for your medical costs, travel, therapy or to pay off any other debts.
Is trauma insurance available through super?
Not anymore. Superannuation funds no longer offer new trauma insurance policies. If you were part of a fund that had trauma cover before July 2014, you might still have it – but it’s worth checking your member statement or calling your super fund to find out.
For everyone else, trauma insurance has to be bought outside of your super. You can purchase a policy directly from an insurer, through your financial advisor or as part of a bundled policy with life insurance or total and permanent disability (TPD) cover. Be aware that if you bundle policies, a trauma payout could bring down the amount of life cover you have left.
How can you use the trauma payout?
There are no restrictions on how you use your trauma insurance payment. It’s not income-tested or tied to any medical procedures. That means you’re free to spend it in any way that supports your recovery, including:
- Paying medical bills and rehab expenses.
- Replacing your income during lengthy time off work.
- Making necessary home modifications.
- Travelling interstate or overseas for treatment.
- Hiring carers, physiotherapists or support workers.
- Covering mortgage repayments or other debts.
How much trauma cover do you need?
There’s no one-size-fits-all answer here. Some financial advisors suggest taking out enough trauma cover to clear your debts (e.g. what’s left on your mortgage) and cover at least 6–12 months of living expenses. But it won’t be the same for everyone.
You’ll need to think about your ongoing financial commitments and how much of a safety net you currently have. If you have a good level of private health insurance or income protection, you might not need as much trauma cover. But if you’re self-employed or juggling household bills with little savings, a larger payout will be required.
How much does trauma insurance cost?
Trauma insurance premiums depend on your age, health, lifestyle, occupation, smoking status and the amount of cover you want to apply for.
There are two main types of premiums:
- Age-stepped premiums: These start out cheaper, but increase every year as you get older.
- Variable premiums: These start higher, but are more stable over time and aren’t linked to your age.
The right choice for you depends on how long you intend to keep the policy. Age-stepped premiums might suit younger Australians who need short- to medium-term protection, while variable premiums might be better for long-term affordability.
What to check when comparing trauma insurance
If you’re looking for the best trauma insurance Australia has to offer, be sure to ask the following questions:
- What illnesses and injuries are covered?
- Are there partial payments for early-stage conditions?
- Are there exclusions (e.g. pre-existing conditions)?
- How quickly are claims paid out?
- What’s the payout rate?
- How much will premiums cost now and in future?
Also look at the insurer’s reputation for service and transparency. You’ll want a provider who publishes claims statistics and has clear definitions in their PDS.
How trauma insurance compares to other cover types
Trauma insurance is easy to confuse with other kinds of personal insurance, so it’s worth knowing the differences:
- Income protection: Pays a monthly benefit (up to 70% of your salary) if you’re unable to work due to an illness or injury.
- TPD insurance: Pays a lump sum if you’re permanently disabled and unlikely to return to work.
- Life insurance: Pays a lump sum to your beneficiaries if you pass away or are diagnosed with a terminal illness.
- Private health insurance: Helps pay for hospital stays and out-of-hospital services but doesn’t cover your lost income or lump-sum needs.
Is trauma insurance worth it in Australia?
If you want peace of mind knowing you’ll have money available in the event of a serious medical diagnosis, then yes, trauma insurance can be worth it. It’s especially helpful if you have dependents or are self-employed.
Both Medicare and having private health insurance can help with your medical bills, but they won’t cover all the costs – or the loss of income and lifestyle changes that come with a major illness. Trauma cover fills that gap.
Ultimately, the best trauma insurance Australia has to offer will be one that matches with your current needs and budget.
FAQ's
Trauma insurance (also called critical illness insurance) pays a lump sum if you’re diagnosed with a serious illness or injury, as defined in your policy.
Yes – if you’d struggle financially after a serious health diagnosis, trauma insurance can support you while you recover.
They serve different purposes. Trauma pays a lump sum upfront, whereas income protection pays monthly income over time. Many people choose to have both.
Cancer, heart attack, stroke and other major medical events. The amount covered and definitions will differ between providers, so always read the PDS.
Not anymore. New trauma insurance policies aren’t available through superannuation.
There’s no single best option – it depends on your needs. Compare policies from multiple insurers and check for claim-payout rates, definitions, exclusions and customer service.
Timeframes will depend on your insurer, but most try to pay approved trauma claims within 1–2 weeks once all documentation has been provided.
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