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Trauma insurance is sometimes called the ‘fourth form’ of life insurance – the other three being income protection, total and permanent disability and death cover.

Trauma insurance can also be known as ‘critical illness’ or ‘recovery’ insurance. As these names suggest, trauma policies pay a lump sum amount if you experience a particular critical illness or serious injury. Illnesses or injuries can include cancer, heart problems, head injuries or strokes. As we wrote last week, Olivia Newton John was first diagnosed with breast cancer at the age of 44. If she had an appropriate trauma policy in place, she would have qualified for a payment at that time.

This demonstrates the need for insurances like trauma cover. While Olivia was probably OK financially, for most people a diagnosis of something like cancer means time off work (paid or unpaid) for them or their loved ones to receive treatment and recover. The financial impact can be significant. Receiving an insurance payment at that time can be life changing.

Trauma cover initially arose to assist people to meet the costs of being unwell. These costs can include things like lost income, medical expenses, rehabilitation expenses, home modification expenses. However, with modern trauma cover you do not need to actually prove that you have experienced these types of cost. The idea is that, if you experience the particular event for which you are insured, such as a heart attack or a cancer diagnosis, you receive the agreed lump sum. You can then spend this benefit as you see fit. If your medical and other costs are less than the amount you receive, good luck to you. You can keep the difference.

Some trauma policies allow you to nominate the specific illnesses or injuries that you wish to be covered for. Other policies are more prescriptive and provide you with a list of qualifying traumas. Different policies vary and so it makes really good sense to talk to an expert about the kind of policy that you need.

Sometimes, people have already experienced particular forms of trauma. Obviously, insurers will not insure you for something that has already happened. But the fact that you have experienced one form of trauma need not prevent you from insuring yourself regarding other forms. In the event of a pre-existing illness or injury, your policy might simply have an exclusion or loading applied to it. An exclusion is where a particular form of illness or injury is not covered by a policy. A loading is where the premium is increased to reflect the potentially increased risk.

Life insurance premiums can be arranged in a variety of ways. The two main ways for trauma cover premiums to be arranged are:

Stepped premiums — where the premium is recalculated each time the policy is renewed. The premiums usually increase each year based on the higher chance of a claim as you get older; or

Level premiums — where the premium is higher at the start of the policy, but annual changes aren’t based on your age, meaning that increases happen more slowly over time and are more to do with inflation than your personal risk.

To find the cover that is right for you, and the premium that best suits your circumstances, make a time to talk with us. We will help you to find the right cover at a price you can afford.