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The Definitive Guide to Critical Illness and Trauma Insurance

Updated 30 December 2021

Our guide outlines what critical illness and trauma insurance is, what it covers, what it excludes, what it costs, pros and cons, alternatives and must-know facts to help you make an informed decision.

Warning: Before selecting any policy, make sure you read the terms and conditions, exceptions, and exclusions of your policy before you buy it. With critical illness and trauma insurance, there is no room for misunderstandings.

What is Critical Illness and Trauma Insurance?

Trauma insurance, sometimes called critical illness insurance, is designed to protect you and your family from the financial impact of illnesses such as cancer, heart attacks, and strokes. Trauma insurance provides a lump-sum payment that you can use to pay for a wide variety of expenses, including:
  • Mortgage
  • Utilities
  • Car payment
  • Child care
  • Health insurance out-of-pocket costs like excesses and any co-payments
  • Travel expenses
  • Treatments not covered by traditional health insurance or state health care

While health insurance may cover many expenses related to the types of conditions covered by trauma insurance, you will often incur additional expenses that are not covered by your health insurance policy.

Know This First - Do I need trauma insurance?

  1. When considering whether or not to buy a trauma insurance policy, you should ask yourself if you have had a family member get cancer, have a heart attack, or stroke? Do you know a co-worker or friend diagnosed with cancer or that had a heart attack or stroke?
  2. Most of us will answer yes to either or both of these questions. But it is just as important to ask yourself if I was to receive a similar diagnosis would I be able to pay my bills or for other expenses that would come up?
  3. If the answer is no, you should consider purchasing trauma insurance to provide a financial safety net for you and your loved ones.
  4. Even if the answer is yes, trauma insurance is still worth considering given it pays a lump sum benefit to help you through the health challenge you may be having.

You may need trauma insurance if you have:
  • A family who is solely dependant on your income
  • A mortgage or other personal loans
  • Limited savings or an emergency fund to cover expenses if you can't work 
  • A business with ongoing overhead costs

To help you make an informed decision about buying or renewing trauma insurance, our guide covers:
Advertising Disclosure: MoneyHub may receive a payment if you make a purchase via our website. Such commercial arrangements have no influence on our independent reviews of financial products. Please refer to our advertising policy for more details.
Trauma and Critical Illness Insurance in a Nutshell - Our View:
  • Trauma and Critical Illness Insurance policy costs vary between insurers - comparing is the best way to get the best deal. Never go direct to an insurer without other quotes in hand. This lets you compare with confidence as you're better informed.
  • Quotes usually include two fees; the premium fee (i.e. the cost of the insurance) and a policy fee (a fee charged by the insurer to administrate your policy). Make sure the quote you receive includes both of these fees.
  • Most policies offer "Total & Permanent Disablement" as an add-on, so don't assume such events (i.e. injuries) are automatically included.
  • Exclusions are common with Trauma and Critical Illness insurance - make sure you understand what's not covered before buying any policy.
  • Every person or couple will have different needs and expectations, which is why our sample quotes are examples only.
  • We strongly suggest using a comparison tool; LifeDirect is the most extensive and offers quotes from multiple leading trauma insurers such as Cigna, AIA, Fidelity and others. All have strong credit ratings, meaning the insurers will pay if you need to replace your income with insurance. And, should you need to claim, LifeDirect handles that too by liaising with the insurer.

What Does Trauma Insurance Cover?

Trauma insurance pays a lump sum amount if you suffer a critical illness or severe injury. The specific conditions covered under a trauma insurance policy can vary between different insurance companies. For that reason, it is vital to understand precisely what is covered under a trauma insurance policy.

The product disclosure statement will provide you with the details regarding the coverage you purchase and, just as importantly, what is not covered. Make sure you take the time to thoroughly read and understand it to avoid surprises in the future.

The conditions covered under a trauma insurance policy vary, but most comprehensive policies cover approximately 30 or so different conditions. Some of the most common conditions covered include:
  • Cancer
  • Heart Attack
  • Stroke
  • Other Terminal Illnesses 
  • Coronary artery bypass
  • Aorta surgery

Other conditions that may be covered depending on the policy you choose include things like:
  • Alzheimer's disease
  • Blindness
  • Chronic liver illness
  • Chronic lung disease
  • Head trauma
  • Parkinson's disease
  • Severe burns
  • Diabetes 

One of the main benefits of a trauma insurance policy is its flexibility by giving you a lump sum cash payout. This allows you and your family to determine what you want and need to use that money for. It could be to pay for medical services that are not covered or for a hotel room so your loved ones can be nearby when you are receiving treatment.

What does trauma insurance not cover?

When you buy trauma or any other type of insurance, it is important to understand the benefits provided by the policy. However, it is equally important to understand the exclusions and waiting periods applicable to your policy.

Several exclusions are common with trauma insurance, and there are waiting periods that can apply as well. The specific details regarding exclusions and waiting periods will vary depending on the insurance provider you purchase your policy from. Some standard exclusions include:
  • Death from suicide within the first 13 months of the policy
  • An intentionally self-inflicted injury that results in a traumatic event
  • Any other traumatic event not listed on the policy
  • A 90 day qualifying period also often applies. In many cases, no benefits will be paid if you are diagnosed with a traumatic condition during your qualifying period.

Pros and Cons of Trauma Insurance

Pros
  • Trauma insurance can provide financial assistance to help pay for out-of-pocket costs associated with a particular set of diseases. If you are diagnosed with a condition that meets the policy requirements, you will receive a lump sum payout that you can use to help pay for any expenses you may incur.
  • Since trauma insurance covers specific illnesses, it can offer significant coverage at a competitive price.
  • In many cases, a trauma insurance policy will cover you even if you are diagnosed and receive treatment in a foreign country. Additionally, since you can use the payout for anything you choose, you can use it to pay for medical treatment abroad if you decide to seek medical assistance in another country.
  • Trauma insurance policies pay you directly; they are not paid out to your doctor or any other health care professional or facility.
  • The lump-sum payment you receive from your trauma insurance policy is tax-free. That means if your policy makes a $10,000 payout, that's how much you'll get.

Cons
  • The most significant con of trauma insurance is that the payout I sonly made when a traumatic illness is diagnosed. A doctor must confirm that your condition meets the definition of the conditions covered by your policy which can be somewhat narrow. If your condition falls outside of the definitions laid out in your policy, no payment is made.
  • The types of conditions defined as covered by insurers can be very specific and narrow. This is why it is critical to understand your policy coverages and details and work with an insurance expert experienced with these policies if you have questions or want to make sure you fully understand how the policy works. There is no guarantee that you will receive a payment even if you are diagnosed with a critical illness that may seem like the policy should cover it.

After carefully weighing the pros and cons of trauma insurance, you can select a policy for yourself or your loved ones. It bears repeating; make sure you read the terms and conditions, exceptions, and exclusions of your policy before you buy it.

Comparison: Best Trauma Insurance Policies

We used LifeDirect to prepare the quotes below for a 35 year old make, 45 year old male and 40 year old male and female couple, each with a $50,000 payout.

Our Results:
  • Trauma and Critical Illness Insurance policy costs vary between insurers - comparing is the best way to get the best deal. Never go direct to an insurer without other quotes in hand. This lets you compare with confidence as you're better informed.
  • Quotes usually include two fees; the premium fee (i.e. the cost of the insurance) and a policy fee (a fee charged by the insurer to administrate your policy). Make sure the quote you receive includes both of these fees.
  • Most policies offer "Total & Permanent Disablement" as an add-on, so don't assume such events (i.e. injuries) are automatically included.
  • Exclusions are common with Trauma and Critical Illness insurance - make sure you understand what's not covered before buying any policy.
  • Every person or couple will have different needs and expectations, which is why our sample quotes are examples only.
  • We strongly suggest using a comparison tool; LifeDirect is the most extensive and offers quotes from multiple leading trauma insurers such as Cigna, AIA, Fidelity and others. All have strong credit ratings, meaning the insurers will pay if you need to replace your income with insurance. And, should you need to claim, LifeDirect handles that too by liaising with the insurer.

Important: Prices are displayed as fortnightly charges and include the policy fee and administration fee.
Insurer
35 Year Old Male
Non-Smoker
$50,000 cover
(standalone)
45 Year Old Male
Non-Smoker
$50,000 cover
(standalone)
40 Year Old Male and Female
Non-Smokers
$50,000 cover each ($100,000 in total, standalone)
Cigna
$7.42
$16.20
$17.84
Fidelity Life
$4.64
$13.11
$15.02
AIA
$7.94
$17.70
$19.41
Asteron Life
$7.41
$17.30
$21.63
Partners Life
$10.21
$18.84
$20.48

Alternatives to Trauma Insurance

In addition to trauma insurance, some additional insurance products can provide financial support if you become sick or injured. These alternatives include the following types of insurance:

1. Income Protection Insurance
  • Income protection is an insurance product that provides a monthly benefit to replace your income if you cannot work due to illness or injury.
  • In general, payments under incomer protection insurance policies will replace between 75-85% of your income.
  • These types of policies like trauma insurance are designed to provide a financial safety net if you cannot work due to an illness or injury.
  • To make a claim on your income protection insurance, you must provide the insurance company proof that you are disabled and cannot work. This is different from trauma insurance that will pay if you are diagnosed with a specific condition. 

2. Accidental Injury Insurance
  • Personal accident and injury insurance policies provide a monthly or lump sum benefit if you are unable to work after an injury or accident. However, due to ACC, this type of insurance is uncommon (only AIA offer this for individuals, and Chubb offers it for workplaces).
  • Similar to trauma insurance, personal accident payouts may be used to pay for out-of-pocket expenses related to your injury or and other expenses you may have.
  • These policies are another way to provide the peace of mind that you will be able to cover medical or daily living expenses if you are unable to work due to an accident.
  • When you buy a personal accident policy, there is a waiting period before your policy pays out and a defined benefit payout period. The waiting period is a set amount of time you have to wait after your injury before submitting a claim.
  • The waiting period can be as short as two weeks or as long as three months. The benefit period is a set amount of time during which you can claim the benefit. In general, the maximum monthly claim length is between two and five years, depending on the insurer and policy you buy.
Trauma and Critical Illness Insurance in a Nutshell - Our View:
  • Trauma and Critical Illness Insurance policy costs vary between insurers - comparing is the best way to get the best deal. Never go direct to an insurer without other quotes in hand. This lets you compare with confidence as you're better informed.
  • Quotes usually include two fees; the premium fee (i.e. the cost of the insurance) and a policy fee (a fee charged by the insurer to administrate your policy). Make sure the quote you receive includes both of these fees.
  • Most policies offer "Total & Permanent Disablement" as an add-on, so don't assume such events (i.e. injuries) are automatically included.
  • Exclusions are common with Trauma and Critical Illness insurance - make sure you understand what's not covered before buying any policy.
  • Every person or couple will have different needs and expectations, which is why our sample quotes are examples only.
  • We strongly suggest using a comparison tool; LifeDirect is the most extensive and offers quotes from multiple leading trauma insurers such as Cigna, AIA, Fidelity and others. All have strong credit ratings, meaning the insurers will pay if you need to replace your income with insurance. And, should you need to claim, LifeDirect handles that too by liaising with the insurer.

5 Must-Know Trauma Insurance Facts

Below are five of the most important facts to know about trauma insurance:
  1. Trauma insurance only covers a specific set of illnesses, and while it is limited in its coverage, this allows the policies to provide significant coverage at a competitive price.
  2. Trauma insurance provides a lump-sum benefit, and you can choose what you want to spend than money on. You can use it to pay for medical expenses, your mortgage, travel costs, or even to pay someone to clean your house while you recover. There are no limitations as to what you can use the money for.
  3. It can be very beneficial to work with someone who is an expert in the area of trauma insurance to ensure you find the right policy to fit your needs. There are many different trauma insurance policies available from many insurance companies—each one with its own unique set of policy triggers, exclusions, and options. Working with an insurance broker will usually ensure you get a policy that provides you with the coverage you are looking for within your budget.
  4. The most common claims for trauma insurance are cancer, heart attack, coronary bypass, and stroke. With advances in medical care and treatment, these diagnoses are no longer a death sentence, and with proper care, you can return to a healthy, active lifestyle. Having trauma insurance provides you with a financial cushion allowing you to focus on recovery and not worry about your finances.
  5. Trauma insurance is often part of an overall financial plan. Reviewing your current financial situation, health insurance coverage, life insurance, and other factors that influence you and your family's overall financial picture, you can determine the level of trauma insurance that is right for you.

Trauma Insurance Frequently Asked Questions

Everyone has a unique family and personal situation when they consider trauma insurance. We anticipate some of the questions you may have below:

What does trauma insurance cover?

The specific conditions covered under a trauma insurance policy can vary from one insurance company to another. However, most comprehensive policies cover cancer, heart attack, and stroke in addition to a much longer list of other conditions. Be sure to review the list of covered conditions under the specific policy you buy to avoid any surprises in the future.

How much trauma insurance is right for me?

The answer to this question depends on your individual situation, which is why working with an insurance broker can help you determine how much coverage you are comfortable with and can afford. When choosing the level of coverage appropriate for you, you will take several variables into account, including rehabilitation costs, medical expenses, income replacement, and other financial responsibilities.

How are trauma insurance claims paid?

Trauma insurance claims are paid out as a lump sum for you to use however you choose, giving you the financial freedom to focus on your recovery and ensuring your expenses are covered.

What will I have to provide if I file a claim?

Your insurance company will most likely request you provide medical records relating to the illness you are claiming for. Your doctor should be able to provide the information the insurance company needs to process your claim.

Do I need trauma insurance?

A severe illness can have a significant impact on your finances. If you are the primary earner for your family and have a major trauma like a heart attack, you may be unable to work for months. This can put your family under severe financial strain as mortgage payments and other expenses stack up.

Statistics show that you are more likely to recover from a major trauma than to die if you are younger than 70. While you may recover from the trauma, you may never recover from the financial impact. Trauma Insurance provides a financial safety net to ease your concerns about the financial implications of a traumatic medical illness.
Trauma and Critical Illness Insurance in a Nutshell - Our View:
  • Trauma and Critical Illness Insurance policy costs vary between insurers - comparing is the best way to get the best deal. Never go direct to an insurer without other quotes in hand. This lets you compare with confidence as you're better informed.
  • Quotes usually include two fees; the premium fee (i.e. the cost of the insurance) and a policy fee (a fee charged by the insurer to administrate your policy). Make sure the quote you receive includes both of these fees.
  • Most policies offer "Total & Permanent Disablement" as an add-on, so don't assume such events (i.e. injuries) are automatically included.
  • Exclusions are common with Trauma and Critical Illness insurance - make sure you understand what's not covered before buying any policy.
  • Every person or couple will have different needs and expectations, which is why our sample quotes are examples only.
  • We strongly suggest using a comparison tool; LifeDirect is the most extensive and offers quotes from multiple leading trauma insurers such as Cigna, AIA, Fidelity and others. All have strong credit ratings, meaning the insurers will pay if you need to replace your income with insurance. And, should you need to claim, LifeDirect handles that too by liaising with the insurer.
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