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Trauma insurance is also known as critical illness insurance, and will pay a lump sum if the insured is diagnosed with a medical condition or event that is defined in the policy. The main purpose of trauma insurance is ease the financial burden of a major illness, by providing capital to cover associated medical costs, debt repayments and living expenses. The insured lump sum benefit is paid out on the diagnosis of a defined trauma condition, and is not dependent on whether or not the insured is able to continue to work.

Defined trauma conditions are typically debilitating, and often have a sudden onset, meaning that they are also typically life altering. The actual conditions that trauma insurance will cover vary between policies. It is thus important to read the particular product disclosure statement for a list of critical illnesses that are covered by the policy, and any terms and conditions that will apply. Examples of illnesses that are commonly covered include malignant cancer, heart attack, stroke, heart disease, organ transplant, blindness, loss of speech or deafness. Other less common serious illnesses may also be covered.

Determining the sum insured

The diagnosis of a major illness is likely to have a significant impact on the life and lifestyle of the insured. Determining the correct amount of insurance trauma cover can be complex, and it is often worth seeking professional advice. Factors to consider include - but are not limited to - the following:

• The cost of required medical care
• The ongoing cost of rehabilitation/therapy
• Necessary changes to your home and lifestyle
• Payments on loans and debt
• Maintaining lifestyle should you need to stop working

It may be necessary to undergo a medical examination and tests when applying critical illness insurance, often depending on the level of cover applied for. As is the case when applying for any type of insurance, it is essential to disclose all matters that might influence whether or not the insurer decides to offer cover and the terms of the cover they offer. If all relevant matters are not disclosed, this may affect the validity of the policy and any future claims.

Taxation

Trauma cover does tend to be more expensive than other forms of life insurance, largely due to the probability of suffering a critical illness. The lump sum payment on diagnosis with a defined critical illness is generally tax free, however trauma insurance premiums are not tax deductible.