Reviewing trauma insurance coverage for women

Tuesday 8 March was International Women's Day and a timely reminder to revisit the needs of your female clients and assess whether they are adequately covered.

While all types of life insurance are relevant, trauma (otherwise known as 'living') cover is available and applies regardless of the insured person's work status. Given that women are more likely to be in and out of the workforce compared to their male counterparts, you could argue that trauma cover is essential for women.

Advisers might be surprised to learn that significantly more policyholders are male, comprising more than 60 per cent of BT's existing trauma lives insured^[1]. In addition, the average sum insured for men is much higher – approximately $240,000 for men, compared to approximately $206,000 for women^[1]. These facts provide a good trigger to revisit coverage for your female clients.

Trauma claims for women

Approximately 84 per cent^[2] of trauma claims made by women are for cancer, which is not only physically devastating, but also financially stressful without sufficient cover. In comparison, just over half of trauma claims for men are because of cancer.

Aside from cancer claims, women tend to claim on their trauma policies because of multiple sclerosis (MS), stroke or cardiomyopathy, although at a much lower level – under 3 per cent of claims for each condition^[2].

Calculating the trauma sum insured

Trauma cover is the most underinsured type of cover available. This may be due to its cost compared to other types of policies. The higher premium is partly due to the higher probability of a claim on trauma policies compared to other types of policies, and that trauma definitions are not linked to the insured person's inability to work. Clients are far more likely to claim on their trauma policy, than life or total permanent disability (TPD).

Another reason that trauma sums insured may be low is because the purpose of cover has not been fully explored. When calculating the trauma sum insured for women, the following could be considered:

• A top-up of Income Protection payments;
• Replacement of spouse income;
• Medical and accommodation costs; and
• Reduction of debt.

While payment of trauma claim proceeds is not dependent on the insured person's work status, the reason for a claim can have a long-lasting effect on their ability to work at full capacity.

For example, with MS, it is hard to predict the progression and severity of the disease. Being an incurable disease, those affected must live with MS for the rest of their lives, with severe sufferers being unable to work. The reason for claim (while unknown at application) will dictate the requirement for a top-up to Income Protection payments for varying lengths of time.

Replacement of the spouse's income may also be required if they will be off work to help during the treatment and recovery period.

The trauma sum insured may also include the cost of medical treatment – which can be very high. After suffering from a specified medical event, the client's previous role may no longer be suitable, therefore their ability to earn income at the same level is restricted. Provisions can be made in the trauma sum insured to allow for an amount to reduce debt, allowing more flexibility and choice in their work life.

Policy comparison

Advisers should be aware of a number of differences when comparing one trauma policy with another.

One area where policies differ is partial benefit payments. For example, some policies will only make a partial payment if a carcinoma is detected, while others may make a full payment – when surgery and follow-up treatment is required to halt the growth of cancer.

Where a partial benefit is to be paid, the maximum payment cap should be noted. Partial payments are restricted to the lower of a dollar amount and a percentage of the sum insured. Therefore, policies that appear to pay a high partial payment may in fact not – due to the low sum insured percentage or, alternatively, to a low cap applying. Some policies can have booster benefits that will increase the amount payable; however, this comes at a cost.

Another point where policies may differ is the number and type of trigger events under the future insurability benefit. The advantage of this benefit is that the sum insured can be increased without medical underwriting. Extensive policies will include a large number of events, including a periodic increase every three years.

The ability to reinstate trauma cover and claim on the same condition is also important. Most insurers will not cover the same condition after reinstatement occurs; however, a few do make partial payments such as 10 per cent of the sum insured, up to a maximum of $50,000. Suffering from a specified medical event may have a profound effect on a client's mortality. Therefore, the ability to reinstate term life cover when policies are linked is also relevant, with about half of all insurers listing term life buy-back as an included benefit. Advisers should ensure that clients are aware of the 12-month gap between when a trauma claim is made and when cover is reinstated.

Lastly, as many of the specified medical events become more common as people age, it is also important to take note of the expiry age of the policy.

^{_{1 BT Living policy holders, February 2016}}

^{_{2 BT Living claims – admitted: 1 October 2013 – 30 September 2014}}

Rachel Leong is a product technical manager of life insurance at BT