Trauma insurance

Trauma or critical illness insurance provides a lump sum benefit if the insured person is diagnosed with one of thespecific medical conditions listed in the insurance policy. The medical conditions covered vary with each insuranceprovider, however the majority of trauma claims are from the areas of cancer, heart attack and stroke.

An insurance provider may typically cover the following medical conditions:

·      aplastic anaemia

·      blindness

·      cancer

·      cardiomyopathy

·      primary pulmonary hypertension

·      chronic liver failure

·      chronic lung failure

·      coma

·      coronary artery angioplasty (triple vessel)

·      coronary artery surgery

·      deafness

·      encephalitis

·      heart attack

·      heart surgery (open)

·      HIV – medically or occupationally acquired

·      intensive care

·      intracranial benign tumour

·      loss of speech

·      major head trauma

·      major organ transplant

·      meningitis

·      muscular dystrophy

·      severe burns

·      paralysis

·      Parkinson’s disease

·      out of hospital cardiac arrest

·      stroke

·      multiple sclerosis

·      chronic kidney failure

·      repair or replacement of aorta

·      repair or replacement of valves

·      dementia

It is important to note when finding the right Trauma Insurance policy for you, that unlike potentially life insurance, the cheapest is not often the best. Each policy will have a defined list of conditions that are covered, and each condition will be defined differently.

For example, some policies will pay a benefit upon diagnosis of prostate or breast cancer whereas other policies will only pay a benefit once the cancer reaches an advanced stage or the life insured needs to undergo chemotherapy.

Trauma insurance may be offered with term life insurance as linked cover. When trauma insurance is taken out with termlife insurance, trauma sum insured cannot exceed the term life sum insured.Trauma insurance can also be taken out as stand-alone cover.

A trauma insurance benefit may be used to:

·      pay for rehabilitation costs

·      pay for changes to lifestyle, for example, refit the home

·      enable the insured person’s partner to reduce their working hours to look after the insured person, or arrange a carerto look after them

·      pay off debts including the mortgage, and

·      provide an income for the insured person and their partner.

If you would like to investigate Trauma Insurance in Australia or would like to review an existing Trauma Insurance policy, speak to Life Shield.

Income Protection

Adviser Urges Doctors To Look After Themselves (health-Insurance)

Adviser Urges Doctors To Look After Themselves (health-Insurance)

Income Protection – Agreed or indemnity?

Income Protection is a broad insurance type which allows you to mould several features around your situation. It is important to review whether an agreed or indemnity policy will be beneficial to you.

• An agreed Income Protection contract enables you to provide financials at the time of application to ensure that the benefit amount is guaranteed. Therefore you will not be required to prove your earnings at the time of claim to ensure that you receive a full benefit.

• An indemnity Income Protection contract requires you to show financials at the time of claim in order to justify your benefit amount. If your benefit amount is more than 75% of your earnings at claim time (this is usually judged as the highest earning 12 month period over the past two years) then your monthly Income Protection benefit will be reduced.

The trick with Income Protection is to be able to understand it’s features and be able to mould these around your situation. A good adviser will be able to assist you with this.

An indemnity Income Protection policy is cheaper than an agreed, and if you work in an occupation where your income will be steady such as full time salaried employment, an indemnity policy may be the way to go. If you would like to only insure a small percentage of your salary package, an indemnity policy also may be best for you as you will have no trouble justifying your benefit amount. Also, if you are employed, there is no trouble finding the required financials as you will have group certificates and pay slips on hand.

If you are self employed and your income fluctuates from year to year an agreed policy will provide you certainty of knowing what you will be paid in the event of not being able to work due to illness or accident. The additional cost of an agreed Income Protection policy (approximately 5%) will ensure that you not need to run around gathering financials or organising interim financial statements from your accountant in the event of claim. 

Of course, with an indemnity policy you may be paying for a larger benefit than you will actually receive due to reduced current earnings at the time of claim and therefore you will need to review your Income Protection policy from time to time and potentially reduce the benefit on your policy if your earnings decrease.

Income Protection Waiting Period

The waiting period on your Income Protection policy is the amount of time that needs to pass after your claim before the insurance company will start to pay your monthly benefit.

Note: it is not the time between the commencement of your Income Protection policy and when you can make your first claim as is often though.

As with any component of an insurance policy, the higher the risk to the insurance company the more expensive your  policy will be so in relation to your Income Protection waiting period, the longer the waiting period the cheaper your policy will be. This is the case as with a longer waiting period, you will need to be off work (to some extent at least) for a longer period of time in order to be paid.

Extending your Income Protection waiting period makes a large difference to your policy premium. For example, the difference between a waiting period of 90 days and 30 days is about 30%. If you are weighing up the difference between a 30 day waiting period and a 14 day waiting period the cost is approximately a further 40%.

It is important to understand why this feature of Income protection should be moulded around your situation. No one wants to pay more for their policy than they need to so if you have the ability (through savings or other means) to provide for yourself for the first few months on not earning, then you may like to look at a waiting period of 90 days in order to reduce your insurance cost. On the other hand, if you are highly cash flow sensitive and due to loans repayments and other lifestyle costs you will not be able to manage even for a short period of time without income, you will require as short a waiting period as possible and will therefore have to spend more money on your Income Protection.

Once you have a policy in place, you are able to increase your waiting period over time without the need to undergo further medical or financial underwriting and therefore you can review this over time. If you find yourself in a position where you have increased your savings and reduced your debt commitments then perhaps you can afford to extend your waiting period and therefore reduce the cost of your Income Protection policy.

Income Protection – Definition of Disability

There are many features of a quality Income Protection policy that are required to be moulded around your situation. Waiting period, benefit period and type of contract are some of the more obvious however the definition of disability is a feature that varies from policy to policy and can make the difference as to whether a claim is paid or not.

Australian Income Protection policies commonly use three distinct definitions to assess degrees of disability:

-          Duties based – where you are unable to perform important duties of your occupation. This is the most common basis (especially for older policies).

-          Hours based – where your working hours are reduced in your occupation.

-          Income based – where you suffer a loss of income due to disability.

Policy Definition	What it means….
Duties Based	You will be paid a full benefit if you are unable to perform income producing duties of your occupation and due to this you are not working. A reduced Income Protection benefit will be payable if you continue to be in paid work.
Hours based	You will be paid a full benefit in the event that you can not work in your own occupation for more than 10 hours per week. You will be paid a reduced Income Protection benefit if you work in your own or any occupation for more than 10 hours.
Income based	You will be judged as disabled if, due to illness or injury, you suffer a reduction in earned income of 20% or greater. If you continue to work and earn income, the income protection benefit that you receive will be reduced.

The majority of Income Protection policies use the duties based definition however there are now policies that include all three definitions and enable the client to choose which definition they are best suited to at claim time.

Most new policies include all three definitions which obviously provide the widest opportunity of claiming. If you have an older policy it may be worth gaining a pre-assessment to see if you can qualify (both financially and medically) to upgrade your policy.

Beware simple Income Protection policies

We are sometimes come across advertisements stating things like “protect your income from only $2 per week!” or “Instant protection – just answer 5 simple questions” and I always shudder. I was reading a comment on the Choice website recently about a lady who applied for one of these direct policies and when it came to claim time the insurance company didn’t pay the claim as after they pulled the client’s Medicare records, they found out that she had an abnormal blood test almost five years ago. The policy had a blanket exclusion for all pre-existing conditions and this, it seems, was enough for them to deny the Income Protection claim.

Insurance companies gained a bad name for themselves in the 80s and 90s as they did not complete their due diligence at the time of application and substituted the “pre-existing condition” clause into the policy. This meant that they investigated the client’s health at the time of claim and often rejected claims after many years of the client paying their premiums and believing that they were covered.

After this insurance companies built into their application process an in depth medical questionnaire and sometimes automatic medicals (including blood tests, blood pressure readings, urinalysis….) that ensure a certain peace of mind for the client who can, with confidence, know that as long as they have disclosed everything to the insurance company that they are covered. They can then start to pay their premiums with this in mind. It also provides the Income Protection client and their adviser a chance to debate the terms of the contract to ensure that this will be the case in specific conditions.

Apart from gaining health clearance for any pre-existing conditions, we find that these policies contain particular exclusions that should not be present in an Income Protection policy. They are more often than not more expensive that a quality Income Protection policy available through an unbiased adviser.

I guess it is human nature to try and get things done as quickly and painlessly as possible, however there are some things that are simply not worth it. Income Protection is one of these. 

Income Protection and Tax

Income Protection is tax deductible. It is a type of insurance that will provide an income at the time of claim (which is taxable) and therefore you should be able to claim a deduction for all premiums paid. Like any financial investment which has the purpose of generating future income, there are tax benefits associated with the payments.

There has been a push recently by industry superannuation funds for members to hold Income Protection within the superannuation environment however it is important to note the after tax position when making your decision.

Income Protection is tax deductible to the fund when held within superannuation (just as it is tax deductible to the individual when self-owned). The superannuation environment is concessionally taxed at 15% as opposed to outside where personal tax rates are up to 45%. Therefore less of a deduction is possible when held inside super. Most funds do not enable tax returns at individual account level and therefore the deductible amount is passed on as premium savings to the policy holders in the fund.

Based upon simply the after tax cost of the insurance, it will always be better to hold your Income Protection outside of the superannuation environment. Obviously as premiums are deducted from your superannuation savings, this will deteriorate your retirement balance quite dramatically if you are not making additional contributions to your fund.

There are some optional benefits available with Income Protection such as a TPD option that will render your policy not deductible to an extent. For example Tower Australia offers a Critical Illness option that will pay a non-taxable lump sum in the event of the life insured suffering a traumatic illness. This option when applied to your policy renders your Income Protection premium 93% deductible.

It is important to note that benefits when payable will be taxable and therefore when thinking about reducing your monthly benefit you will need to take this into consideration. You will receive the whole benefit from the insurance company in the form of a monthly direct transfer or cheque and then you will need to put money aside to cover the tax payable.