13 November 2015

Recently we attended a seminar on calculating how much trauma insurance cover should you have.  The result was – it’s impossible to calculate because it will depend on what Traumatic condition you would get and how severe it would be.

An example of this may be that someone has $100,000 trauma cover.  They suffer from heart issues meaning that they will need an Angioplasty thus triggering the payout on the Trauma.  But the client is back at work within a few weeks.  Result – the $100,000 was more than sufficient for their needs in fact you could say overinsured.

But someone else may get a Motor Neurone disease.  Get paid out the $100,000 but never be able to return to work in the same capacity as they were previously working.  So $100,000 may not be enough.  You could say they were underinsured.

Dr Marius Barnard brought about the introduction of Trauma insurance as he wanted to allow his clients the resources to be able to have a satisfactory recovery from a Traumatic event.  Having funds at such a time meant people could take time off work, have their bills covered, pay for medical expenses, allow  support people (eg spouses) to be off work.  The list for useful purposes of cash at such a time is endless.

But this generally means that Trauma Insurance is a short term cover which provides sufficient resources until a client is able to return to work.  However many Traumatic conditions means that a client may not want to return to work or unable to return to work.  In such a case the client would require a plan B which could include: - reducing to one income, selling assets, living off passive income assets OR income protection or Total Permanent Disability insurance.  These insurances are long term. 

The average age that a person takes up Trauma cover is 41.  The Average age that they cancel their trauma is 47.  The average age to claim on a trauma insurance is 51.  What this is saying is that people are cancelling right before they are most at risk of a traumatic condition. 

In most instances cancelling Trauma insurance will be due to cost.  The real issue with Trauma is that it is more expensive as you get older – and logically so.  The older you are the higher the risk is that you’d have to claim on it. 

Marius Barnard identified as far back as 1994 that having premiums that increased as you got older is defeating the purpose of Trauma cover as people would cancel when they are most at risk. 

However there is the option of taking out “level” premiums or premiums that don’t increase as you get older.  You pay higher premiums to start but they do not increase so when you get to the age where you are most at risk it remains affordable. 

You could look at the premiums in 2 ways – short term and long term.  A “rate for age” or “Stepped” premium may be preferred if the cover needed was only for the short term.  The “Level” premiums would be preferred a longer term cover was required. 

An Insurance Advisor is able to compare the overall costs on the differences and we would recommend that clients consider Level premiums especially on the Trauma covers to ensure that cancellation of any Trauma cover is based on a clients’ needs and not because it became too expensive.    

Published In Whakatane Beacon

This post was written by

Trish Marsden - who has written 96 posts

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