What is critical illness Insurance?
Critical illness cover is a term you will often come across when you search for a trauma policy. The reason for this is that critical illness insurance cover and trauma insurance are synonymous terms!
Both serious illness and trauma imply that a person is suffering from a severe health / medical problem i.e. they cover the same diseases e.g. cancer, heart conditions, stroke etc., hence major illness insurance companies arbitrarily attach one of these designations to their policies.
Whereas some critical health policies companies advertise their policies with either one of the two labels, you may also find that many serious illness insurance companies use these labels interchangeably. If you aren’t familiar with this fact, you may end up with the assumption that there is a difference between critical illness insurance and trauma cover, when there isn’t any.
Others types of critical health cover
Here are some other types of policies that you should know about. You can combine them with trauma cover to expand your risk coverage:
- Life cover: Trauma insurance doesn’t have to be a standalone purchase. You can combine life insurance and critical illness cover for maximum protection against all kinds of uncertainties. With the life cover, you can provide your family with means of sustenance after you have died – or even when you have been diagnosed with a terminal illness, leading to death within the year. With the critical health cover you’ll be making sure that even if you get really sick for a shorter duration of time, your family will be paid for as you get better. Basically, you’re making sure that your family’s future is secure when you’re not around – be it permanent or temporary.
- Joint life insurance: Joint life insurance has exactly the same benefits as normal life insurance, but it provides cover for two lives instead of one i.e. when one of the two people who signed up for it dies, the survivor gets the benefits of the policy. Note that the survivor is left with no insurance of their own. Two single life insurance policies will provide better protection, but will also cost more. When taking out joint insurance, keep in mind the fact that there could be trouble in splitting up the policy in case you have a falling out with your partner, so you should never rush into a decision regarding this policy.
- Accident and sickness insurance: This is a combination of policies: whereas simple accident insurance provides coverage for an unexpected accident that isn’t covered by your major medical insurance (in terms of hospitalization costs, emergency room care, outpatient recovery), sickness and accident insurance cover both unexpected accidents and sicknesses listed in the policy. This policy is recommended for those who plan to take a costly capitalistic venture in the future that could stretch their finances to the limit, making them otherwise unable to cope with surprise incidents that aren’t covered by their primary health insurance.
- Total and permanent disability insurance: Also known as TPD, this policy provides you with a lump sum benefit if you receive a medical diagnosis that makes you unable to work again. The benefit amount is usually used for paying debts and ongoing living costs that were previously paid through your salary – since you can’t work, you’re unable to get the said salary anymore, and hence unable to support your lifestyle.
TPD is divided into three categories:
- Own occupation TPD – you’re not able to work in your own field anymore.
- Any occupation TPD – you are permanently unable to work in your own field and also in all other fields through training, education or experience.
- Non-occupational TPD – you are unable to perform two out of five daily living activities.
In general, the own occupation TPD variety is considered to be the one which gives the maximum level of protection whereas the non-occupational TPD provides the least. In other words, the former requires the least amount of disablement while the latter requires the most.
You can own and pay for a TPD policy using superannuation accounts – but this typically makes the policy ‘any occupation’ (as per the superannuation law which is based on ‘any occupation’) and the benefit taxable at the time of payment. Compared to this, a personal TPD will not be tax deductible and its benefits will not be taxed either.
You can insure a maximum of around 3-5 million AUD as TPB coverage but it will require the scrutiny of your past times, family history, medical history and unusual occupational risk factors. Anything that makes you more of a liability for the provider will cause your premium to increase.
Also note that, for larger claims, extra medical tests/checkups will be required before the claim is approved.
There is a general misconception that trauma cover has made TPD cover totally redundant, but there are, in fact, medical conditions which aren’t covered under critical health policies that TPD does cover:
- central nervous system;
- emotional disorders: depression, psychoses and PTS;
- chronic brain syndromes;
- musculoskeletal disorders: rheumatoid arthritis, osteoarthritis and chronic overuse syndrome;
- cardiovascular disorders: congenital heart problems, hypertension plus peripheral vascular disorders;
- gastrointestinal problems: ulcerative colitis;
- ear and eye disorders: retinal detachment and labyrinthitis;
- respiratory disorders;
- endocrine disorders: diabetes; and
- emphysema and pulmonary fibrosis.
There are also insured events under critical health insurance that would make you ‘totally and permanently disabled’ from your occupation as well as other occupations, before you have even satisfied the particular critical health insurance definition!
Simply put, you would be at a risk, without any protection, while your insurance company assesses the validity of your claim. The company may reject your claim that could have been covered by a TPD policy.
The optimum way to provide maximum protection to your family is to purchase a TPD policy in conjunction with a trauma policy. It will usually increase your net premium cost by around 11%, but in return, you will have covered up a gap in your risk protection that could have created distress for you and your family.
In short, if you think of trauma cover is your backup coverage, you can think of TPD insurance as the backup for your backup coverage!
How to decide how much cover you and your partner need
As a couple looking to buy traumatic cover, you’ll need to keep several factors in mind, the reason being that trauma insurance is a commodity whose adequacy is dependent entirely on the circumstances of the policy buyer. In other words, you will have to assess the present status of your family, finances and property before you decide how much trauma insurance you require.
This can be tricky for most people, so the best route to take is hiring a financial advisor – it will cost you extra cash, but it is a small price to pay in return for ascertaining the optimum amount of coverage for you and your family.
Factors to consider:
|Your present and future (expected) amount of income||Even if you have a steady source of income in the foreseeable future, you may need to abandon your job/business due to health reasons. In such a case, you’ll need trauma insurance whose benefit matches your income (and hence, indirectly, your lifestyle requirements). This is why you need to purchase a policy that will sustain your present way of life.|
|Debts that you might hold in the future||Once again, debts can be a significant burden on any household and paying them, even with a job, can be quite a bother for many. If you become medically unfit for work, your trauma insurance will need to be sufficient for paying off your debts and financing your treatment. For this reason, you will have to make a reasonably accurate estimation of the debts you might need to take at various stages in the future.|
|Your family make up||Trauma insurance is all about providing your loved ones with enough money to live stress free, while you recuperate from a major illness. To this end, it is vital that you assess the number of dependents of the policy and purchase a suitable one accordingly. As a couple, you will need to decide on the number of children you plan to have.|
|Assets such as shares or property||These assets essentially have the same purpose as traumatic insurance – they can be cashed in at a certain point in the future when you are in need of money due to unforeseeable circumstances. Therefore, the amount of trauma insurance you require may be lessened if you already own property or shares. Keep in mind however that these assets can be subject to depreciation as a result of fluctuations in the market i.e. they may be worth a lot today but might not amount to much, say, ten years from now, when you need them. On the other hand, trauma insurance will remain fixed in value, ready for use the moment the need arises.|