If you're diagnosed with a critical illness, crisis or trauma insurance can relieve your financial difficulties. Unlike income protection insurance, which depends on your inability to work, trauma cover is paid out on the diagnosis of a defined critical illness, regardless of your working status.
Instead of receiving a monthly income stream, you're paid a lump sum that you can spend on whatever you like – medical bills, your mortgage, an overseas trip, a new car. Trauma insurance is often an adjunct to term life policies.
Be careful to read the fine print about how a major illness is defined. And be aware of any waiting period – you may not be covered if a critical illness is diagnosed within three months of taking out a policy, for example.
The main benefit of trauma insurance is that it gives you a financial buffer so you have time to recover from an illness. If you've had heart surgery and need six months to get back to work, it's good to know you can afford to take that time off and not race back just so you can pay the mortgage.
While trauma insurance is not to be confused with income protection, it's a good alternative for people not in the workforce – such as homemakers.
Total and Permanent Disability Insurance
Total and permanent disability insurance (TPD) is a common option on life policies and covers you for permanent disability that prevents you from working in your usual occupation.
The amount of disability required for you to make a claim varies. If you're a doctor, you may be considered totally disabled if you lose the use of one hand.
Claims are usually paid as a lump sum. Your cover is limited to an amount that matches the life insurance you have purchased.
Check the fine print to see what constitutes a disability – it can be quite hard to make a claim. And check whether a TPD payout voids your death cover. If it does, make sure the TPD payout is enough to live on for an indefinite period.
Critical illnesses are conditions such as:
- Heart attack/surgery
- Multiple Sclerosis
- Motor neurone disease
- Organ transplant
- Muscular dystrophy
- Parkinson's disease
- Dementia or Alzheimer's disease
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