Term life cover provides a lump sum payment on death of the life insured.
Trauma cover pays a lump sum on the diagnosis of specific medical events
Other Useful Pages:
Types of Life Insurance
Term Life Insurance:
This provides a cash lump sum in the event of death of the life insured. It is
relatively cheap given the potential payment amount and will be required by most
people who have dependents. Most policies will also pay out the amount of
cover if you are diagnosed with a terminal illness and have less than 12 months
to live.
The cover is easy to understand, quite simply if you die while the policy is in place the amount of cover is paid out. The only exclusion is suicide in the first 13 months. The payment from the policy will be tax free if it is a non-superannuation personal policy.
Note that these
policies do not have any cash value.
Total and Permanent Disablement Insurance (TPD):
Total and Permanent Disability Insurance (TPD) is commonly taken as an extra
with term life cover, or on a stand alone basis. TPD cover provides a lump sum
payment in the event of total and permanent disablement. Policies are very
similar, in order to claim most have a definition of you being unable to work
for 6 months, and it is likely that you will never return to work again.
There are two types of TPD cover, own occupation where the payment is made when you are unable to perform your occupation (this is important for specialist occupations). Or more commonly people have a any occupation definition, where you are able to claim if you are unable to perform any occupation that you are suited to by education, training, or experience.
The number of TPD claims are rather small, if finances are a problem you could consider dropping this insurance.
TPD Buy Back
Note that if you have life & TPD on a linked policy, if you claim on TPD the amount of life cover that you have will be reduced by the TPD claim. For example if you have $500,000 life and $250,000 TPD and you claim on TPD, after the claim only $250,000 life cover will be left. Some companies offer a buy-back, which is where the life cover will be reinstated to full value after 12 months at an additional cost.
A method of avoiding this problem is to take stand alone TPD cover
Trauma Insurance
Trauma insurance is known as a number of different terms depending upon the
insurance company. It is commonly called trauma insurance, critical illness
cover, medical emergency cover or recovery cover. The different names do not
matter as the policies are all designed to provide a lump sum payment in the
event of specific medical events. The cover is designed to assist with possible
medical bills, or reduce mortgage and other debts to provide general financial
relief. Given the nature of what the payment is designed for, the amount of
trauma cover required is not as great as life cover. Trauma cover is also an
expensive form of insurance, commonly people will take between $50,000 $150,000
cover (depending on individual circumstances)
Payment is made upon diagnosis of the condition. Note that some companies offer basic trauma cover the will cover 5 events. When considering trauma cover you should take a high quality policy to ensure that you have a high level of cover for up to 45 events.