Trauma Insurance: What Is It - And Why Do I Need It?

Introduction

Unfortunately, the vast majority of people do not understand what Trauma insurance covers, and why they should have it.

This article attempts to explain what Trauma insurance covers, and why most of us should have at least some Trauma cover, by detailing one of my client's recent Trauma insurance claim experience.

For privacy purposes, I have changed the client's personal details, however, the facts about the insurance cover and claims process have not been altered.

Background

I was originally approached by my client (I will refer to her as Jane in this article) early in 2012.

Jane is married, has one dependent child, and was in her late 30's at the time we first met.

Jane and her husband were referred to me by Jane's work colleague.

Jane's work colleague was already a client of mine for several years, and therefore was able to provide a personal recommendation of my services.

Jane and her husband had a Financial Adviser for several years, before meeting with me.

Jane and her husband were not satisfied with the level of service they were receiving from their existing Financial Adviser, and wanted to seek alternative advice.

Jane and her husband's existing Financial Adviser had arranged life insurances for Jane and her husband, including Trauma insurance.

After Jane and her husband had met with me, and I explained the various Client Services Options offered by McKinnon Financial Planning, they decided to have me prepare a comprehensive review of their Financial Plan which included a review of their Trauma insurance cover.

 

Analysis and Recommendation

Jane and her husband completed my Client Profile process, which included Jane confirming her Risk Management Objectives in the event she suffered from a major medical Trauma summarised below:

•     payout all mortgage loans facilities
•     payout all other personal loans, Line of Credit facilities, and any other debts or liabilities
•     provision to pay out all Credit Card facilities, based on the limit of each Credit Card as the debt of her Credit Cards is not known in the future
•     pay for her child's education
•     provision for the following potential expenses:
  •     family emergency cash fund
  •     payment of medical expenses, not covered by Medicare and private health insurance
  •     costs associated with potential alterations to the family home (e.g. wheelchair access, reconfigure bathroom, et cetera)
  •     payment of rehabilitation expenses, not covered by Medicare and private health insurance
  •     employment expenses of a domestic helper (to look after the family if Jane was unable to cook, clean, laundry, ironing, et cetera)
  •     replace Jane's employment income for a period of one year in the event Jane decided to take an extended convalescence period after suffering from     a major medical Trauma

In the process of completing my Client Profile and data audit, I discovered that Jane's existing Trauma insurance policy insured benefit was $454,230, but my Financial Analysis, based on Jane's Risk Management Objectives, concluded that Jane should have a Trauma insurance policy insured benefit of $870,000.

 

My subsequent Trauma insurance recommendation for Jane is summarised as follows:

•     obtain a Trauma insurance policy with an insured benefit of $870,000
•     include the following optional benefits:
  •     annual inflation indexation of cover
  •     Trauma reinstatement benefit

The insured benefit of the Trauma insurance policy is based on a Financial Analysis of Jane's requirements, and therefore includes expenses currently incurred by Jane.

 

The effect of inflation each year generally causes an increase in those expenses, and therefore if the insured benefit does not keep pace with the effect of inflation, there may be a shortfall of cash at the time of a future claim.

The ability to obtain a Trauma insurance policy is primarily based on the current health and medical history of the insured, and therefore in the event the insured suffers from a major medical Trauma, it would be likely difficult to obtain Trauma insurance cover in the future.

 

Unfortunately, having suffered from one type of medical Trauma does not guarantee you will not suffer from a different type of medical Trauma in the future E.G. you may be involved in an accident which caused you to be paralysed, and at a future date you may be diagnosed with cancer.

Therefore, adding the reinstatement optional benefit to a Trauma insurance policy will provide the opportunity to continue with Trauma insurance cover, even after having made a claim.

Jane accepted my recommendation, and the Trauma insurance policy was arranged.

The Claim

Each year I review my client's life insurance policies, usually at about the time of the policy anniversary date, to ensure that the insured benefit matches the client's updated financial requirements, and the policy and premium costs match the client's needs.

In November 2014 I had just finished reviewing Jane's existing Trauma insurance policy, and recommended that Jane replace her existing Trauma insurance policy with a Trauma insurance policy that provided a slightly better cover, with a lower premium cost.

Jane had accepted my recommendation, and I was in the process of arranging the replacement Trauma insurance policy application, when Jane informed me that she was scheduled to meet with her doctor, to investigate the discomfort she had been experiencing in her lower abdomen.

As the new insurer would require details of the medical investigation, I stopped arranging the application for the new Trauma insurance policy, awaiting Jane's report of the outcome of the medical investigations.

 

Jane's existing Trauma insurance policy was still in force, as it is my policy not to cancel an existing life insurance policy, until the application for the replacement policy has been accepted.

In December 2014, Jane informed me that the medical investigations had discovered that Jane had ovarian cancer, and Jane had scheduled a medical specialist to remove the cancerous tumour immediately.

As soon as Jane's informed me of her cancer diagnosis, I commenced the Trauma insurance claim process, and on 14 January 2015, I submitted the completed claim form on behalf of Jane to the insurer.

I was able to complete the claim process for Jane quickly, because as part of my original data audit of Jane and her husband's circumstances in 2012, I maintained copies of all financial records (including Tax Returns and Tax Assessment Notices), insurance policies, et cetera all of which are an important part of the claims process, and if those documents are not available, the time taken to obtain these documents can cause significant delays in processing the claim.

On 27 January 2015, I received a letter from the insurer confirming that Jane's Trauma insurance claim had been approved, and $959,175 would be transferred to Jane's bank account immediately.

The claim payment was higher than the original $870,000 insured benefit, as the benefit had increased in 2013 and 2014 by the annual indexation rate.

As Jane had opted to include the optional Trauma reinstatement benefit, Jane was able to repurchase her Trauma insurance cover, without medical underwriting requirements, or an increase in the standard premium rate.

The new Trauma insurance policy covered all medical Trauma events listed in the policy including:

•     coronary Trauma events
•     all other serious Trauma events (excluding loss of independence and terminal illness)
•     and even a partial payment of $50,000 for a second cancer Trauma event related to Jane's ovarian cancer

Summary

If you are unfortunate enough to suffer from a major medical Trauma, such as cancer, the last thing you need is to be worried about your financial security such as:

•     Do I have enough sick leave?
•     Will I be able to pay my home loan?
•     Will my income insurance be enough to pay my bills?
•     How long is my income insurance Waiting Period?
•     How will it take to process my claim?
•     How will I pay for the Medicare and private medical insurance gaps?
•     What if I don't want to return to work for a while after I have recovered?
•     What if I want to choose my own medical specialist?

Trauma insurance provides you with financial security, so you can concentrate on the important task of fighting the cancer, or recovering from heart bypass, recovering from a major accident, et cetera.

Also, dealing with a professional Financial Adviser will go a long way to ensuring the key factors are taken into account when obtaining a Trauma insurance policy such as:

    How much cover do you need?

    How should the policy be structured?

    What Optional Benefits should be added?

 

McKinnon Financial Planning believes 'everyone needs a plan' and Trauma insurance is a key component of helping to ensure your plans are not significantly derailed if you hit a bump in the Financial Plan road map!

If you are unsure as to your own particular circumstances regarding Trauma Insurance, please do not hesitate to contact my office and arrange a FREE FINANCIAL ASSESSMENT APPOINTMENT because #everyoneneedsaplan to ensure they can meet their expenses if they are unable to work.,