Grow Magazine

How sick can you afford to get?

31 October 2017

Like this couple, extra stress is the last thing you'll want in a critical illness. Heather Jacobs explains.

Their kids had grown up and left home and Jenny and Michael Fraser,* a married couple in their early 60s, were saving for their retirement when they were hit by a number of life-threatening medical conditions that left them reeling.

Michael was the first to fall ill. Although he exercised regularly and led a healthy lifestyle, he started feeling a bit weak and tired so he went for what he thought was a routine check-up.

“The doctor discovered that two valves in my heart needed to be replaced,” said Michael.

“It’s a fairly straightforward procedure, but I got an infection during the operation and suffered a life-threatening virus. I had a number of relapses and ended up back in the hospital before it eventually cleared up. I wasn’t used to being sick. It was like entering another world.”

While Michael was off work for more than six months, he’d worked for the same company for the past 25 years so they continued to pay him. His ANZ OnePath trauma policy also kicked in, paying a benefit of $110,000.

“We had some really big medical bills so the trauma insurance meant that we could afford the best care and focus on getting better without worrying about money,” says Michael.

They had taken out trauma insurance on the advice of their financial adviser Gordon Schauer, director of Financial Planners Inner West.

They’d been clients for about 14 years and had changed their insurance a decade earlier during an annual financial review.

Jenny, a senior consultant at a blue-chip Australian company, had an income protection policy as part of her salary package so she wanted to cancel her private income protection cover.

Schauer suggested she take out trauma cover with the premiums she freed up.

The couple has always been big believers in insurance and is comprehensively covered with the four types of life insurance: life cover; total and permanent disability cover; trauma cover; and income protection insurance.

Providing the financial breathing space

Covering 36 major illnesses or injuries, trauma insurance pays out a lump sum on diagnoses. It is typically used to pay for private medical costs above what is covered by health insurance, the ongoing cost of therapy or special transport costs, adjustments to housing and lifestyle changes, and debt repayments.

“In the case of Jenny and Michael they are happy to be working and the contract itself doesn’t require anybody stop working to make a claim,” says Schauer.

“Jenny saw the value in having it, so we set up the trauma policy with ANZ’s OnePath. At the same time we were reviewing Michael’s insurance and decided he’s just as exposed, so we took out a policy for him as well.”

Their trauma policies were designed to cover the debt the couple had on their investment properties in Queensland. They’d bought them during the mining boom and wanted to avoid being forced to sell during a downturn.

As Michael made a steady recovery, it could have ended there; but a year after her husband fell ill, Jenny was diagnosed with breast cancer.

Jenny says her employer was very compassionate and supportive, providing her with paid time off. Over the course of four months, she was either off work or working from home while she underwent chemotherapy and recovered. She also filed a successful claim on her trauma insurance, receiving $220,000 in benefits.

“Trauma insurance allowed me to have some extra tests that were not covered by Medicare or private health insurance,” she says. “I could also go privately to get the very latest in radiation technology that was not available at the local public hospitals. I might have done these anyway but the trauma payout took the worry out of it.”

Jenny recalls a conversation with her oncologist who told her that many women don’t get trauma insurance, especially those working who have children and who are not working full-time.

“If a mother gets a serious illness then the costs are still there even if they are not dropping an income – young families have the added issue of childcare whilst the mother (or father) is getting treatment and the partner often needs to take time off to look after the children, or their wife/husband,” she says. “I have recommended to my colleagues that they all look at their insurance, especially those with young families.”

It can happen to anyone, at anytime

Schauer agrees that while many people take out life cover and income protection, they are less likely to consider trauma insurance. He urges them to re-consider, particularly clients in their 50s and 60s who are winding back their insurance.

“This is often when the kids have moved out; they’ve paid down their debt and are looking at winding down the insurance because they think the premiums are getting too expensive,” says Schauer. “But, they are probably doing this at a time when there’s a greater chance of something happening to them.”

Australians suffers from a critical underinsurance problem with many people thinking they won’t be paid out if they make a claim.

An April 2016 survey by PwC found that, while 78 per cent of Australians viewed life insurance as important, only 42 per cent believed their life insurer would be there for them in their time of need.

But, according to a 2016 Australian Securities and Investments Commission report, 90 per cent of life insurance claims made between 2013 and 2015 were paid in the first instance, including 96 per cent of claims for life cover and 93 per cent of claims for income protection.

“The important thing is to disclose everything upfront concerning your medical background and personal details and if their condition matches the definition, it’s pretty straightforward,” Schauer says.

“It’s also very important to get insurance while you can. We’ve got a lot of clients who have had a health condition and they have to retain their existing cover as it’s very hard to get extra cover once you have a medical condition.”

Jenny and Michael have now recovered and are back on track preparing for their retirement. Fierce advocates of insurance, they recommend comprehensive insurance cover to everyone they know.

“You just don’t think it’s going to happen to you,” says Michael. “But if something goes wrong and you need to claim, it’s a big relief to not have to worry about money on top of everything else.”

  • Names have been changed to protect their identity.