Trauma insurance, sometimes called critical illness cover, pays a tax-free lump sum if you are diagnosed with a specified serious illness. Unlike life insurance, you receive the money while you are alive to use as you choose. Understanding trauma insurance helps you evaluate whether it belongs in your protection plan.
Trauma cover provides financial flexibility during serious health events.
What Trauma Insurance Covers
Trauma insurance covers a list of specified conditions, typically including cancer, heart attack, stroke, and coronary artery bypass surgery. The exact conditions and definitions vary between insurers.
To receive a payout, you must be diagnosed with a condition on the covered list that meets the policy definitions. Not all diagnoses of a named condition necessarily qualify.
The payout is a single lump sum. You receive the money and can use it however you choose, with no restrictions on spending.
Common Covered Conditions
Most trauma policies cover major cancers, heart attacks, strokes, and coronary bypass surgery. These are sometimes called the "big four" because they account for most claims.
Additional conditions often include organ transplants, kidney failure, major organ failure, paralysis, severe burns, and certain neurological conditions.
Policies may have dozens of covered conditions, but the majority of claims relate to cancer and heart conditions.
How Definitions Matter
Not every diagnosis results in a payout. Policy definitions specify what qualifies. For example, cancer definitions typically exclude certain early-stage skin cancers that have minimal impact.
Heart attack definitions may require specific biomarker levels or evidence of heart muscle damage. A minor cardiac event might not meet the definition.
Reading and understanding definitions before you purchase is important. Ask your adviser to explain what would and would not be covered.
Why Trauma Insurance Matters
Serious illness creates financial pressure beyond just lost income. You might face medical costs, travel for treatment, childcare while unwell, or home modifications.
Income protection replaces income, but trauma insurance provides flexible funds for whatever you need. It can cover gaps in ACC and health insurance.
The lump sum nature gives you control. You decide whether to pay off debt, fund treatment, take time off, or support your family.
How Much Cover
Trauma insurance cover amounts typically range from $50,000 to $500,000 or more. The right amount depends on your circumstances and what you want the money to achieve.
Consider what you would want to do if diagnosed with a serious illness. Pay off your mortgage? Take extended leave from work? Fund overseas treatment?
Many people align trauma cover with their mortgage or a year or two of income. Others choose amounts based on specific goals.
Relationship With Other Insurance
Trauma insurance complements rather than replaces other cover. It does not provide income replacement like income protection or death benefits like life insurance.
Some people have all three types of cover, each addressing different risks and needs. Others prioritise based on their circumstances and budget.
Some policies link trauma to life cover, reducing life insurance if a trauma claim is paid. Others are standalone with no impact on other policies.
Premium Considerations
Trauma insurance premiums are significant. Cover is more expensive than life insurance because claims are more common.
Your age, health, and smoking status affect premiums. Pre-existing conditions may be excluded or make cover unavailable.
Premiums typically increase with age if you have stepped premiums. Level premiums start higher but remain constant.
Making A Decision
Consider whether trauma insurance fits your protection needs and budget. For some people, it provides valuable peace of mind. For others, the premium could be better used elsewhere.
If you have substantial savings or other resources, you might manage a health event without trauma cover. If a diagnosis would create significant financial stress, trauma insurance deserves consideration.
Discuss your options with a financial adviser who can help you evaluate how trauma cover fits your overall protection plan.
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