Trauma insurance might be a fairly new type of coverage option, but it’s also an extremely useful one for anyone looking to protect their family. One of its biggest benefits is that it allows claimants to receive a lump sum of cash when they suffer a traumatic illness that renders them unable to work. But is it necessary if you already have income protection cover?

Each person’s financial situation is unique, but it’s worth taking a closer look at what trauma insurance is and how it differs from income protection.

What is Trauma Insurance?

Trauma insurance is a relatively new kind of insurance in which customers are provided with a lump sum when they are hit by an illness on their coverage list. Most companies offer a list that covers around 35 or so different illnesses, and the payout is paid upon diagnosis of the condition by a registered doctor.

Most people take out trauma insurance to ensure they can cover the expenses that aren’t included in their standard health insurance policies. These things include the costs of rehabilitation and care takers, loss of income and also treatments the standard health insurance policy doesn’t cover.

What illnesses are covered?

Policies differ from provider to provider, and so you should always check the list carefully to ensure you have the coverage you want. However, in most cases trauma insurance will cover the most common types of illnesses, including heart attacks, strokes, malignant cancer, loss of eyesight, and some neurological conditions. The standard policy will only allow one claim, after which an additional policy should be purchased. Beware that some trauma policies attached to life insurance policies will reduce the latter’s payout.

What is Income protection insurance?

Separate from trauma insurance, income protection insurance is designed to replace your income if you cannot work due to illness or injury. These kinds of policies come with variable terms, such as “up to the age of 65 years” or “a maximum of five years”.

The most expensive type of income protection coverage is called “Agreed value insurance”, which pays claimants based on their income when they first took out the policy. Meanwhile, Indemnity value insurance pays claimants according to their income at the time their illness or injury was first sustained. These policies are usually cheaper but can also be riskier, because the claimant may only be working part-time, or for a reduced salary, when they become unable to work.

How do trauma insurance and income protection differ?

The main difference is that trauma insurance is paid out as a lump sum upon diagnosis of the illness. There is no waiting period and it is no requirement that the claimant is unable to work. The main benefit is claimants receive extra cash to pay off any expenses related to their condition, regardless of their ability to work.

This differs from income protection insurance, which can only be collected when the claimant is unable to work. Claimants don’t receive a lump sum, but instead a weekly or monthly payment that’s only a percentage of their regular earnings. In most cases, this means claimants will take home less than they are used to earning.