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January 07 newsletter

We have decided to update this topic because of how few clients understand what this sort of insurance involves. Trauma or crisis insurance does have its place in an insurance plan.

Trauma insurance pays a one-off cash sum if you are diagnosed with one of approximately 30 specified illnesses or injury. Examples of the major events or illnesses covered include cancer, heart attack and stroke.

It is important to understand what trauma insurance isn’t. Trauma insurance only pays out on a limited number of specified illnesses. There are literally thousands of illnesses and injury events that it does not cover, including back injury and mental illness.

Why you might consider trauma insurance

However, as part of an insurance plan, the Shape of Money believes that trauma insurance provides two essential benefits.

• Economic - in the event that you suffer from one of the specified illnesses, there is likely to be a reduction in assets, due, for example, to a short-term absence from work. This cover provides a cash sum to help minimise the reduction of those assets.
• Recovery - funds provided by trauma insurance give you the opportunity to “take time out” following a trauma event. For example, it would enable you to enjoy an extended family holiday. Removing financial worry may also assist in your recovery.

How much trauma insurance should you have?

If you have life and income protection insurances, the Shape of Money doesn’t believe that you need to buy buckets of this form of insurance. Somewhere between $50,000 and $100,000 cover should be sufficient in most cases.

You should only consider trauma insurance once your life and income protection insurance needs have been taken care of. However, higher levels of trauma insurance are sometimes considered for the following reasons:

• To provide a lump sum amount to supplement income protection payments,
• To provide a lump sum to repay outstanding mortgages and credit cards, and
• To provide some cover in the event that you are unable to get any income protection insurance, for example, if you are work in a “dangerous” occupation.

Related page of the month

Review how trauma insurance fits with your overall life and disability insurance programme.