Trauma cover provides a lump sum payment if the life insured suffers a specified heart condition, neurological condition, cancer or tumour, a severe accident, loss of sight, hearing, limb(s), paralysis or loss of independence.
In the event of a claim and depending on the cover, a tax-free lump sum is paid to the insured person. The benefit can be either a partial or full, which depends on the policy conditions. For example, a partial benefit may be paid for loss of hearing in one ear, but a full benefit would be paid if loss of hearing occurs in both ears.
Cover can be held up until age 75 or limited cover to age 99 if the policy is linked to death cover.
Trauma cover is generally quite expensive and is not tax deductible. Premiums must be paid personally (i.e. cannot be held within superannuation).
Trauma cover is typically held to fund short-term expenses (e.g. mortgage repayments, cost of living), as well as medical costs related to the illness being suffered. Therefore, when determining the level of cover required, it is important to take in to account the amount of assets you have readily available, as well as sick leave accumulated. If you have assets and sick leave available, it may be sensible to take a reduced level of cover and reduce your cost of cover.