Once considered an essential safeguard for those diagnosed with serious illnesses such as cancer and stroke, trauma insurance is falling out of favour. Though the protection it provides remains valuable, only a small portion of the population still holds a policy, with numbers continuing to decline.
Trauma insurance provides a lump sum payment to individuals diagnosed with major health conditions such as heart attacks, significant head injuries and Parkinson’s disease. However, recent data from the Australian Prudential Regulation Authority shows that these policies are becoming less common. Fewer than 4% of Australians currently hold trauma cover. Between June 2020 and June 2023, the number of policyholders dropped by 16%, falling from 1.08 million to 912,000. Unlike other types of life insurance, trauma cover is rarely available within superannuation, meaning consumers must pay for it out of their own pocket at a time when this is becoming increasingly difficult.
Trauma insurance is personally owned and paid after-tax, making it the most expensive form of life cover in Australia. APRA’s latest data shows the average annual premium is $1,778 with an average cover amount of $213,000. Premiums increase with age which makes long-term affordability more challenging. Additionally, unlike income protection or total and permanent disability insurance, trauma cover does not include mental health conditions. This exclusion has raised concerns about the fundamental value of the product. When finances are under pressure, trauma cover is often one of the first expenses to go.
Financial experts continue to highlight the importance of trauma insurance, yet limited access to affordable advice poses a barrier to informed decision-making. Currently, fewer than 600 financial advisers in Australia regularly discuss life insurance, even though one in three Australians sought professional advice in the last 12 months. Only about 10% ultimately received that advice. As a result, there are growing calls for the federal government to introduce dedicated insurance advisers to help consumers understand their options and choose cover that is sustainable.
The broader worry is that without trauma cover, people diagnosed with a major illness might be left without sufficient financial support at a critical time. Some specialists recommend adjusting rather than cancelling cover altogether. By lowering the payout amount, policyholders can reduce their premiums without losing access entirely. Trauma insurance claims are relatively common and all payments are tax-free. Giving up a policy now could mean losing access later due to age or deteriorating health.
