As the regular readers of my blog will know, I’m about to turn 27 soon which means that I have been mentally preparing to turn 30 for the last 6 months. Part of this mental preparation involves ensuring that I get my financial house in order. My early twenties were about getting rid of consumer debt, developing basic financial habits such as budgeting and salary sacrificing into my superannuation to make the most of compound interest. My partner and I also bought an apartment last year and since then I have been trying to build up 3 months worth of savings again. I haven’t quite yet gotten on the investing bandwagon outside of superannuation, but I can’t get trauma insurance out of my mind. I know, it’s a weird thing for someone in their twenties to say. I also would like to start this blog by stating that I do not work for an insurer and this is not a sponsored post, I’m just a twenty-something who happens to be passionate about trauma insurance (this is concerning even to me).
What is trauma insurance?
Trauma insurance provides you with a lump sum payout in the event that you are diagnosed with any of the illnesses or medical events that are defined in your trauma insurance policy. There are usually 30-50 different medical events defined, which can include diabetes, blindness, cancer, being admitted to ICU, skin burns, etc. The lump sum is payable upon the diagnosis (subject to certain conditions, for example, you surviving the medical event at least 14 days after the diagnosis) and is payable regardless of your actual costs incurred in relation to the medical event. This means that you can use it flexibly in the way you think is best, whether that is paying off the mortgage, paying for medical bills, being able to cut down to part time work while you recover, etc.
How is trauma insurance different from other insurances?
Income protection cover helps replace your income if you are not able to work. Income protection cover has variable terms, such as those paying you for a maximum of 2 years, or up to a certain age. However, income protection is just that, income protection. What if you get sick however you are able to work and your doctor won’t write you a medical certificate? What if you have medical bills that are much more costly than just the salary you have lost from the medical event? The difference between trauma insurance and life insurance is that life insurance is paid upon death. I would definitely take out life insurance if I had children or other dependents, or if our mortgage was too large for my partner to pay off by himself, but at this stage it’s not something I’m too concerned about.
My employer pays for two years worth of income insurance, there is a limited amount of total and permanent disability insurance available through my superannuation fund and I already have private health insurance. Private health insurance would cover certain hospital expenses and medical bills. As such, if I experienced a medical event, my income and health expenses would be somewhat already covered, and the trauma insurance could make up the difference as well as fund any lifestyle changes required.
Why am I thinking about trauma insurance in my twenties?
Most people would say that I’m too young and healthy to be worrying about insurance, particularly before even hitting my thirties. In fact, many of my friends had not even heard of trauma insurance. I’ll start with the practical reasons. Trauma insurance is one of the most paid out insurances (2 of every 3 policies are paid out) and therefore the premiums can be relatively more costly. Premiums can be ‘stepped’ meaning that they increase with age or ‘level’ meaning that they are fixed until you turn a certain age, often 65 or 70. If I lock in an a level premium whilst I’m still in my twenties, I can secure a lower annual premium whereas if I wait until my thirties, the costs will be significantly higher. In addition, in the event that a medical event were to happen to me, realistically I would not have enough savings to manage without experiencing at least some financial setback and of course, a lot of stress. I would much prefer to pay a monthly premium of between $40 – $60 and have peace of mind knowing I would be financially equipped, giving me some freedom and dignity to recover. If I never have to lodge a claim, I’ll consider myself lucky.
From a personal and slightly more irrational perspective, as I enter my late twenties I am much more exposed to and aware of loved ones and acquaintances falling ill. I can no longer maintain the belief that as a young person I’m immortal and immune from the health challenges that people never see coming. The thing about trauma insurance is that it’s like a seed that has been planted. Once I started thinking about it, the minute I got a headache or felt slightly under the weather, I was terrified that I had started thinking about it too late. I know this is sounding a little bit crazy and driven on paranoia, which of course there is an element of that, but really it comes down to being a worthy component in my financial plan. Knowing that I will have the funds to deal with a medical event, I can invest the bulk of my savings elsewhere, in less liquid assets if I so choose.
Choosing a trauma insurance plan
When I first started looking into trauma insurance, I was skeptical about whether the insurance would actually be paid out. I imagined that an insurer would come up with a multitude of reasons why it wouldn’t be paid out, which is the last thing an unwell person needs to contend with. So I began reading various insurance plans’ product disclosure statements, carefully reading through the definitions of the various medical events and compiling a huge list of questions to ask the financial adviser. There’s no getting around it, it’s really important to research various plans thoroughly and speak to several insurers to find an appropriate plan. I also looked at review and rating websites such as Canstar and read finance forums such as the finance section on the Whirlpool forums.
In terms of the amount of trauma cover required, ASIC’s Money Smart website suggests considering the following:
- Your level of private health insurance
- Other types of life insurance you have, especially through your super fund
- How much income you and your family will need to live if you can’t work for a while or forever
- What help or family support is available to you
- What government benefits or workers compensation is available to you
I will report back on the cover I end up choosing!
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