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Trauma insurance pays a lump sum if you are diagnosed with a serious illness or suffer a serious injury listed in the policy, such as cancer, a heart attack, a stroke or a major head injury. It is also called critical illness or recovery insurance.
Unlike TPD or income protection, it pays on the diagnosis or event itself. You don't need to stop working or show you can never work again. That makes it the cover that pays for treatment, time off and recovery when you are likely to get better but need money while you do.
By Better Rate Mate Editorial Team ยท Last reviewed
Each policy lists the conditions it covers and defines each one medically. Moneysmart's examples are cancer, heart conditions, major head injury and stroke. It also warns that trauma cover does not cover mental health conditions, and that definitions differ between insurers, so the same diagnosis might meet one policy's definition and not another's.
Two conditions commonly sit on top of the diagnosis. A survival period means you must survive for a set time after the event before the benefit is payable; one insurer's 2026 TMD uses 14 days. A qualifying period means some conditions aren't covered if they first appear soon after the cover starts; the same document applies 90 days to some trauma events. Check both before comparing prices.
Moneysmart lists what people use the money for: out-of-pocket medical costs, living expenses while you or your partner can't work, therapy, nursing care and special transport, changes to your home, and paying down debt such as the mortgage.
People mix these three up because they can overlap after a serious illness. The difference is what triggers the payment and how it is paid.
| Cover | Pays when | How it pays | Must you stop working? | Can it be held in super? |
|---|---|---|---|---|
| Trauma | You're diagnosed with a listed condition or suffer a listed injury | Lump sum | No | No new cover since July 2014 |
| TPD | You're unlikely ever to work again, as defined | Lump sum | Yes, permanently | Yes (any-occupation definition) |
| Income protection | Illness or injury stops you working, after a waiting period | Monthly payments for the benefit period | Yes, fully or partly | Yes |
| Life cover | You die, or are diagnosed with a terminal illness | Lump sum | Not applicable | Yes |
Super funds stopped offering new trauma cover in July 2014. From then, trustees can only provide insurance that matches a condition of release (death, terminal medical condition, permanent incapacity or temporary incapacity), and a trauma diagnosis on its own isn't one of them. If you joined a fund that offered trauma before July 2014, you may still have it; your member statement will show it. Otherwise, trauma is bought outside super, directly or through an adviser, and paid from your own pocket.
Some policies pay a partial benefit for less severe conditions, such as some early-stage cancers, and the full benefit for more severe ones. How many conditions pay in full, and how many pay only in part, is one of the biggest differences between policies.
A reinstatement option lets you restore your trauma cover after a claim, usually after a set period, so you are still covered if something else happens. It costs extra and isn't in every policy.
Trauma can be bought on its own or packaged with life and TPD cover. If it is packaged with life cover, Moneysmart notes your life cover may be reduced by whatever the trauma claim paid.
Moneysmart suggests thinking about how much income you and your family would need if you couldn't work for some time, what income protection or TPD you already hold, what private health insurance would pay, and what help family and friends could give. Trauma is usually sized to cover a period of treatment and recovery plus the costs health insurance won't: specialist gaps, travel, care at home and the income a partner gives up to help. It is rarely sized to replace income for years; that is income protection's job.
The ATO lists trauma and critical care insurance premiums as not tax deductible, because the policy pays a capital sum rather than replacing income. On the other side, a trauma lump sum paid to you as the person insured is generally not taxed as income. Check with a tax agent if the policy is owned by someone else, such as a business.
It can be, if a serious illness would leave a gap between what your savings, sick leave and health insurance cover and what treatment and recovery really cost. It is a lump sum on diagnosis, so it helps even when you expect to return to work. If you already hold strong income protection and savings, the gap may be small.
Trauma insurance covers the specific illnesses and injuries listed in the policy, commonly including cancer, heart attack, stroke and major head injury, each with its own medical definition. Mental health conditions are not covered.
No. Trauma pays a lump sum when you are diagnosed with a listed condition, whether or not you can work. TPD pays only if you are unlikely ever to work again as the policy defines it.
No. The ATO says trauma and critical care insurance premiums are not deductible. A trauma payout to the person insured is generally not assessable income.
Not new cover. Super funds stopped offering trauma insurance in July 2014 because it doesn't match a condition of release. Cover taken out before then may continue, so check your member statement.
Medical definitions in trauma policies are specific and change between product versions. Read the PDS for the definitions that apply to you, and speak to a licensed financial adviser if you want a recommendation.
Life, TPD and trauma cover pay lump sums. Income protection is the cover that pays a monthly income while you recover.
