Setting trauma sums insured
Of course some advisers don’t like trauma insurance at all, but if you do include it in packages, then having a sound approach to setting the sum insured is worth thinking about.
Wednesday, January 25th 2017, 11:00AM
by Russell Hutchinson
Clients will ask, of course, and sooner or later the regulator may ask too.
The first big factor is whether you already have income protection in the recommended package. If you so, then trauma cover can be lower, because there may be significant overlap in cover with income protection. If income protection is not in the package (for whatever reason, cost or occupation class), then probably the sums for trauma (and perhaps TPD) should be more substantial.
For ‘domestic’ business, there are three main identifiable approaches based on quote data, in reverse order of usage:
- Buy the same trauma as the life cover amount – which is typically something like the value of a home loan, and results in the largest sums insured.
- Buy $100,000 trauma.
- Buy $50,000 trauma.
Of course, in a budget constrained world these are ‘rules of thumb’ which result in ‘buyable’ numbers are quite useful. But they aren’t very needs based. The problem with needs-based approaches is that some are very abstract, and can result in telephone numbers, that no-one buys.
As a fairly old-fashioned person I like to recall the principle of indemnity. Quantifying typical losses can give us an approach that is both needs-based, and results in sensible numbers. Taking such an approach underlines the role of income protection insurance too. If living without an income for a long period is your worry, then you really need to buy income insurance. That leaves trauma with an easier job: creating options, such as quitting your job early, spending time with family, or paying for unfunded treatments.
Talking about what those things might cost with your client is then the easy path to talking about what the sum insured is. If you want to quit your job early the conversation can settle on whether you would like half a year’s salary, or a year. You can work out the cost of living legacies.
For a more data-informed version of this, you can access company information about the duration and cost of treatments from diagnosis to recovery for the most common trauma conditions: cancer and heart disease. More detail on that, in another column.
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