Risk specialist Troy Edmondson says that trauma cover may be the way to go to combat the underinsurance problem.
Edmondson is a “big believer in trauma cover”, and says that it is a good conversation starter for advisers struggling to convince clients to get life cover.
“The way I think about it is the life insurance is your drastic event. The chances of you passing away over the next year is very unlikely but you still need to cater for that event and that’s why having that funded through your superannuation is far more tax effective, has little impact on your cashflow, you can have beneficiary nominations so the right people get the money at the right time,” says Edmondson. “It’s not really a huge talking point. Whereas trauma insurance is because it’s sort of a ‘living’ cover and most people can relate to a relative, a colleague, or a friend who’s suffered from some sort of event.”
He says that the increase in income protection funding via platforms is a positive sign because it provides more options for clients. However, the downside of that is that it affects the account balance and Edmondson says advisers need to remember this and talk to clients about salary sacrificing.
He manages about one trauma claim a month, and relaying these claims to clients often gives him assistance in making the sale.
Edmondson talks about what impact a trauma event will have on a clients’ life, in terms of if they want to get the best possible medical treatment but have to rush back to work because they’re only getting 75% of their income and still have to pay off their mortgage.
“My recommendation is based on total debts plus an additional $200,000 so they can afford to get the best possible medical treatment regardless of what it’s going to cost. A lot of the drugs available now aren’t rebateable back through Medicare or private health cover.”
The uptake in trauma cover above the minimum threshold of $200,000 is increasing, as more clients are starting to move towards the $500,000 and $700,000 level, says Edmondson. There is a growing trend and people are more inclined to have these sorts of discussions rather than those about death.
He says that the biggest issue is the ignorance on behalf of Australians, because many people still do not realise that trauma cover exists.