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Vicky A.
Vicky A.
North Gosford, NSW
3 Likes
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My husband and I are looking at income and trauma insurance policy through our business and would like to ask about trauma. Does trauma only include life threatening illness or an injury that stops you from working?

8 months ago

Responses

Hi Vicky

Good question!

Trauma only covers you for illnesses such as Cancer, Stroke & Heart Attack. There are actually quite a few illnesses that Trauma cover covers; however Cancer, Stroke and Heart Attack are the most claimed illnesses.

Income protection Insurance covers you for injuries that prevent you from working for a prolonged period of time.

You can pay for your Income protection insurance via super if you wish; however Trauma needs to be paid for out of pocket.

Hope this helps! however please feel free to contact me on 0414 727 308 if you require clarification.

Regards

Sam Zammit
South West Lending Solutions

Comments

Income Protection Insurance is NOT deductible for a super fund, so it would be more tax-effective for you to pay the income protection insurance out of your own pocket and claim the tax deduction in your own tax return.

Trauma is not tax deductible for anyone, and you cannot get it paid from your super anyway.

the thing that IS tax deductible when paid by a super fund is DEATH and TOTAL PERMANENT DISABLEMENT (TPD). The premiums here ARE deductible in a super fund, however are NOT deductible for you personally. SO it is more tax effective to pay for Death and TPD from super, and if you need to you can make a personal contribution to top up your super......and now you can claim a tax deduction for that personal super contribution.

talk to an advisor who knows the ins and outs of super and tax and insurance and make sure you look at EVERYTHING and cover yourself as best you can for all eventualities.....and also make sure that you are setting policies up in the most beneficial way for you, taking into account the tax consequences of who owns each policy.

Its a bit complicated, so you need to make sure its done right:)

cheers

BC

Hi Vicky,
Personal Insurance generally come under the following policies.
Lump Sum Benefit
- Life
- Total Permanent Disability
- Trauma/Critical Illness

Monthly Benefits for the duration of the illness/injury or insured period, whichever is lesser
- Income Protection
- Business Insurance

Depending on the Insurer, there are variations in definition and inclusions, Trauma is a lump sum benefit which includes some serious illnesses, but not necessarily terminal or life threatening (Although all illnesses may result in eventual loss of life). Just pick up a PDS, and read what is listed to be under Trauma/Critical Illness (it is VERY specific) and you will see what I mean.

I have had clients suffer a defined stroke which triggered a Trauma Lump Sum benefit, and they are alive and well right now, of course during the time he was incapacitated, it also triggered his benefits under Income Protection.

Hi Vicky,

You have some great responses above and you should be aware that unlike Death, TPD or Income Protection- Trauma insurance doesn't require you to be out of work or pass away in order to claim the benefit. Trauma insurance pays a lump sum benefit on diagnosis of a specified condition from the PDS whether you return back to work tomorrow or 1 year from the claim. Trauma insurance is one of the most important insurances I recommend to clients but is sometimes overlooked because it is not tax deductible or able to be paid via super but I can tell you it is worth holding.
Eg. I had a client that ran a textiles business who I helped set up a Premier Trauma policy and they were unfortunately diagnosed with a tumour that resulted in eventual deafness in both ears. The client first received a partial payment as he had the full benefits policy and then received the remainder after it was a claimable event as per the PDS. This helped the client pay for surgery, take some time off work and not worry about having to return back to work ASAP.

It is always best to speak to a specialist about your options and what is best for you before cancelling any insurances you may hold as you may lose benefits you cannot get back.

If you have any questions, please don't hesitate to contact me on the below details.

Ronald Pratap
Principal Financial Adviser/ Risk Specialist
RP Wealth Management
Level 2, 351 Oran Park Drive, Oran Park 2570
T: 02 9188 1547 M: 0434 502 079
E: ronald.pratap@rpwealthmanagement.com.au
W: www.rpwealthmanagement.com.au
Like us on Facebook: https://www.facebook.com/RPWealthManagement
Follow me on simplyaskit - https://www.simplyaskit.com.au/profile/1283/ronald-pratap

Hi Vicky, good question.
Like the other answers here, Trauma pays a lump sum if you suffer a listed trauma event. It isn’t always life threatening, but always very serious.
There are about 40 different ‘events’ that trauma usually covers. But beware because some will quote you on the ‘standard’ type trauma instead of the comprehensive. Always take the comprehensive because the standard generally only includes 12 different events.

Another thing to consider is depending on the sun insured you’re after, you can add trauma to your income protection (usually a PLUS or Comprehensive with extras policy) and will have some form of trauma included.
Why would you do this?
Because that will enable you to claim your trauma as a tax deduction as it’s part of your income protection.

Let me know if you have more questions.
Kind Regard. Paul

Comments

I would be extremely careful about what gets claimed as a tax deduction where you have a mixed policy: some income protection and some trauma protection. The thing that makes the premium deductible is the nature of the thing that you are insuring:

INcome protection replaces income, the income itself would be assessable, and the payout itself is also asssessable, hence there is a clear link betwenn the assessable income and the deductible expense

TRAUMA insurance pays you an amount of money given a certain event. Eg cancer, stroke, blindness. None of these things have the nature of INCOME and so any premium paid in respect of this will not be deductible. But the flip side of this is that the payout is not assessable either.....

SO if you shandy some trauma premium in an income protection policy and claim the entire premium, and ATO gets a whif of it, then you will find yourself not only with a notice of amended assesssment for this expense, but you stand a significantly higher risk of a full-blown tax audit.....and nobody benefits from that!!!!

Keep this in mind: the last Budget has an EXTRA $130million dollars set aside just for auditing individual tax returns.....thats a LOT of individuals who are in for an unpleasant experience, and a pretty high risk of a nasty surprise......

so in terms of what you CAN claim and what you SHOULD claim, its better to be conservative and fly under the radar......
cheers
bc

Hi Vicky,

Hopefully, you have this sorted out by now but thought I would throw my two cents in!

Ronald has nailed it here and perfectly answered your question.

Your question had 2 parts:

1 - Does Trauma only cover life-threatening illnesses? No, as the others have pointed out there are approximately 40 conditions that are covered. (Here is a quick list from one of the major insurance providers to give you an idea http://bit.ly/2JpK8BI).

2. Does Trauma require you to have an inability to work? No, again as Ronald pointed out one of the compelling features of Trauma insurance is the lack of requirement for a Dr to tell you that you cannot work.

As I am sure you have now seen with Income Protection policies, the waiting period has a massive impact on the premium you pay. The shorter the waiting period, the more expensive the cost.

Trauma insurance pays upon diagnosis and is one of the quickest policies to be paid out from the time that a claim is submitted. In all of the claims we have done for Trauma insurance, our average claim time is under a week for payment of trauma insurance.

NB: Point on tax deductibility - again I would echo Brendan's comments here. It is very simple when it comes to the deductibility of premiums. Income Protection = Deductible, Trauma Insurance = NOT Deductible. It is not worth playing around with this.

Thanks!
Craig

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