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The truth about trauma insurance

Q. A few years ago, my husband and I got all our affairs in order. We prepared our wills, took out life insurance and income protection, and we also took out a policy called trauma insurance which costs approximately $150 per month. Things are quite tight financially at the moment. Is trauma insurance really necessary?


A. Personal risk insurance is an area often overlooked and misunderstood.

As you have mentioned, there are four basic types of personal risk insurance: life, total and permanent disability, income protection and, finally, trauma and critical illness.

You have specifically asked about trauma and critical illness cover. This type of insurance is a relatively modern insurance option (as far as personal risk insurance goes) that has been developed in response to the need to provide people with financial assistance when they suffer from a severe medical illness.

The core illnesses covered are heart attack, stroke, loss of independence and, of course, cancer. Most policies offer these conditions as basic cover, and provide more comprehensive cover at additional cost.

The need for trauma insurance comes about because modern medicine has resulted in greatly improved survival rates from serious illnesses. However, often the cost of this modern treatment is prohibitive or the quality of life after surviving the critical illness is not the same as before the illness. 

As more people survive their critical illnesses, they are left with financial hardship due to the large medical bills (specifically, the gap not covered by Medicare or their private health insurance), or they are unable to return to work in their full capacity and can not earn the same amount of money. Some people also see their illness, such as a heart attack, as a wake-up call to change their work-life balance.

Critical illness insurance provides funds to pay the medical bills, pay the mortgage while treatment is being administered, or money to change your work-life balance.

Everyone's particular needs in relation to insurance are different. I would recommend you speak to an expert in this area, such as a financial adviser, to work through how much cover is appropriate for your husband and determine the consequences if you decide to self insure (to stop the cover). Please note that this cover becomes more valuable as you age as there is a higher chance of contracting a serious illness. I strongly recommend that you do not cease this cover until you have sought advice relevant to your personal situation.

Need help with your financial situation? Book a complimentary first appointment with Switzer Financial Services today. 

Published on: Wednesday, October 28, 2009

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