7 Simple Steps to Trauma Cover
Sourced by Mike Sayer of Estate Planning DNA and Succession Matters
The first simple step to trauma cover is to identify our need – how we would benefit from it and why it is important to us?
One of the most revealing methods of finding out why it’s important to us is to create a picture of the future and how we want it to be – or not to be!
Whilst none of us want to be affected by a traumatic condition such as a heart attack or cancer it is reality that it may happen. Being aware of how it may affect our lives assists us in evaluation the importance of managing the risk and facing the potential reality.
It’s really important to have a picture of the financial choices you would want to have in order to avoid financial pressure and to be able to focus on recovery.
- What would happen to our mortgage – could we keep our house?
- How would it affect our children’s education?
- What will be the impact on our business, our retirement and our lifestyle?
- Would we need to modify our home?
- On the positive side, how does it look if we have sufficient funds to allow us to focus on getting better rather than on debt and the anxiety that creates?
How does it look to have choices?
How does it feel to know you’ve prepared for the unexpected?
If you (or your partner) for example were to suffer a critical illness, what financial position would you be in?
Having taken the time to picture the impact that critical illness could have on your life, and how you would prefer to be situated should it happen – take a moment to think about the impact of it should it happen today.
Be honest – really honest and face the reality of what could happen and how you would feel when faced with such adversity. Do you have the funds now to resolve debt, meet abnormal expenses and minimise the impact of critical illness? Would you regret not having planned for the unexpected?
The comparison of our vision to current reality is likely to reveal a gap between where we would want to be and where we would be in our desired future, one that can be remedied by appropriate action. It is a spur to action that we may one day be very thankful to have taken.
It’s all too easy to believe that it will never happen to us – we’re good at that – but the facts tell us otherwise!
As you will see or read in the media, more and more Australians are suffering from lifestyle related diseases and statistics support the unfortunate message that prevails.
On the bright side, the life expectancy of Australians is increasing as medical advances continue to find ways to combat disease however, the incidence of critical illness is increasing and our survival can bring with it an unexpected trauma – financial pain!
Did you know:
- Prostate cancer is the most common cancer in Australian men and one in nine men will develop prostate cancer in their lifetime. Each day 32 men learn news that they have prostate cancer.
- Whilst cancer is the leading cause of death in Australia (43,000 people expect to die of cancer in 2010) more than 60% of cancer patients will survive more than 5 years after diagnosis and the survival rate for many common cancers has increased by 30% in the past two decades.
- One in nine women in Australia will be diagnosed with breast cancer. The number of women diagnosed in Australia increased from 5289 in 1982 to 12,614 in 2006.
- Melanoma represents 10% of all cancers, with more than 10,300 cases being diagnosed annually in Australia.
- 13,000 new cases of bowel cancer are diagnosed each year. The lifetime risk for males developing bowel cancer is 1 in 19 and of women 1 in 28.
- Whilst coronary heart disease kills more Australians than any other single disease the death rates fell by 45% in males and 44% in females between 1996 and 2006.
- 1.10 million Australians are disabled long term by heart, stroke and vascular disease. The prevalence of heart related conditions increased by 18.2% over the decade 1994-2004.
- Overall, men have a 40% risk of suffering a traumatic illness between the ages of 30-64, and 25% for women.
- By age 75 an estimated one in three men and one in four women develop cancer.
- Each year an estimated 60,000 strokes affect Australians – about one every ten minutes.
- A 2005 study showed that 85% of male and 78% of female survivors of cancer aged between 25 and 62 who were working at the time of diagnosis. 41% and 39% respectively stopped work during cancer treatment.
The facts of life are that, statistically, the risk of serious illness is high and that survival rates are increasing – placing an increasing need and emphasis on our being able to deal with the financial consequences – to have choices.
Source: Prostate Cancer Foundation of Australia 2011 Australian Institute of Health and Welfare 2008, Cancer in Australia – An overview 2008, Cost of Cancer in NSW – Access Economics 2007
Trauma insurance is a financial tool that pays you a tax-free lump sum on diagnosis of specified conditions including the most common traumas of cardiovascular disease, cancer and stroke. It pays whether or not you can or cannot return to work.
When we suffer a serious illness, the first thing we might ask is ‘how long are we going to live?’ The second is ‘how is this going to affect me financially?’ And if we’re worried about finances, the resulting stress and anxiety is counter-productive to our recovery.
We need to be able to focus on recovery rather than debt.
Trauma insurance cover was introduced in South Africa by Marius Barnard, brother of the famous heart surgeon Christian Barnard, in 1967 to deal with what he called ‘economic death.’
He said that we need insurance not only because we’re going to die but because we are going to live. It’s living insurance.
Amongst other things, it provides funds for:
- Debt resolution
- Meeting abnormal (i.e. medical) costs
- Long term care
- Modifying your home
- Modifying your lifestyle
- Taking time out from work
- Boosting wealth creation strategies when long term income earning capacity is reduced.
The implementation of trauma insurance cover is a vital risk management strategy for those who are in the accumulation stage of their financial plan, i.e. they have not yet reached retirement age with adequate funds to provide for a financially secure retirement.
Whether you are in an early life cycle stage, where the cost of raising children and meeting mortgage liabilities is a priority or at a later stage when all resources are focused on building up retirement funds, you are confronted by financial risk.
Trauma insurance is all about being able to minimise that risk and providing choices when choices matter most.
Our first thought is usually to be able to pay out our mortgage so we know that we can “beat the banks” and keep our home.
But there are many other needs including abnormal medical expenses, the possible need to boost retirement savings, reduce business debt or personal loans and so on.
It’s essential to look carefully at how much you will need to at least give yourself breathing space and time to recover without the anxiety of debt around you.
As a guide, your trauma insurance cover should at least allow you to resolve all or a substantial part of your home mortgage.
It is then preferable to provide for abnormal expenses such as:
- Medical expenses over and above health insurance benefits
- The cost of modifying your home
- Carer costs
- Travel for treatment, especially if you live in a rural area
- Compensation for loss of work capacity and income
- Boosting retirement savings
- Loss of contribution to your business activity, if you are a business owner
Seeking professional advice from an insurance specialist or broker will guide you through all the complexities and issues as well as make sure that you have cover that meets your needs and importantly, your budget.
The advice you would expect to receive would include:
- How much trauma insurance you need and why
- Which insurance policy is best for you in terms of cost and conditions covered
- Whether your policy should have a stepped (increasing) or level (constant) premium
- Whether a policy should include reinstatement or buyback terms where trauma insurance and / or life insurance can be reinstated after a payment of a trauma benefit
- Who should have trauma insurance in the family? Children can also have trauma insurance
- Should you have trauma insurance to protect your business?
We will help you to see why and how trauma insurance cover can give your work for you, by making the complex simple and the simple effective.
Ensure that you review your cover regularly, preferably annually but at least every three years.
A lot can happen in a relatively short space of time that can cause our cover to be inadequate and less effective.
It may be that your debt has reduced in which case your cover can be reviewed accordingly. Either way, be sure to review your needs regularly.