Another important factor to consider with a critical illness policy is what happens after you make a claim. Once you receive a payout for a covered illness listed in your Product Disclosure Statement (PDS), your policy typically ends, leaving you without protection for future health issues. This can be a significant concern, especially if you later develop a different, unrelated illness and no longer have access to the financial support that critical illness cover provides.
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What are life cover buy back options and do you need it?
Life insurance buyback options allow you to reinstate the full value of your life cover after a successful Total and Permanent Disability (TPD) or Trauma claim. If your life insurance benefit was reduced due to a payout under a combined policy, a buyback option can help restore your original coverage. In most cases, insurers require a waiting period of 12 months after the claim has been submitted and paid before the buyback can take effect.
For example, if you have a combined life insurance and TPD policy with a $1 million sum insured and receive a $350,000 payout for total and permanent disablement, your remaining life cover is reduced to $650,000. With a buyback option, you can restore the full $1 million after the waiting period, ensuring your loved ones receive the intended level of financial protection.
TPD and trauma life cover buy back options
Depending on the insurer you choose, bay back benefits could be a built-in feature of your combined policy at no extra cost or can be added for an additional fee. The buyback feature generally allows you to ‘buy back’ the amount of cover that was paid at claim time, usually after a specific period has passed.
Generally, a TPD or trauma buyback benefit can only be applied once, meaning if you suffer two consecutive claimable events resulting in a full benefit payable, the buyback option is usually not available after a second successful claim has been paid out, and your combined cover will remain at the reduced sum insured amount.
However, select insurers might offer the life cover buyback option a second time, depending on their terms and conditions.
Essential things you need to be aware of:
- Once a buy-back option has been activated some insurers will no longer offer certain policy benefits previously included, for example, a loyalty bonus or the suspending cover benefit.
- Buyback benefits might fall away after you reach a certain age, for example, age 65, 70 or 75.
- Some insurers might require additional underwriting or an increase in premiums.
- The life cover you bought back may or may not be eligible for subsequent indexation increases.
- The buyback benefit might not apply to partial insurance payments.
- The responsibility to activate the process might lie with you. You might have to notify the insurer of your intention to buy back the reduced sum insured.
What is TPD buyback?
A TPD buy-back benefit is purchased, or included free of charge, under a bundled life and TPD policy and is typically used to restore the full amount of your life insurance after a total and permanent disablement claim has been paid. Depending on your insurer, coverage is generally repurchased 12 months after your claim was paid and can only be done once per combined TPD and life policy.
What does double TPD mean?
Generally, double TPD immediately restores your full life insurance benefit after a total and permanent disablement claim, without having to wait the mandatory 12 months. Meaning, when combining life insurance with TPD and a total and permanent disablement claim is paid, your life cover will automatically be restored to the same amount as the TPD benefit paid.
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Is double trauma the same and double TPD?
Sort of. On a joint life and trauma insurance policy, when you make a trauma insurance claim the claim amount reduces your life insurance. A double trauma insurance benefit automatically reinstates your life insurance to the full amount after a trauma insurance claim is paid. Generally, your life insurance company will also waive all future premium payments on this portion of the benefit until your policy expires.
The double trauma option is usually only available on bundled policies and is an additional insurance benefit option that is relatively inexpensive to add. You can typically purchase this benefit on top of your trauma insurance policy.
What is trauma reinstatement?
Trauma reinstatement is an optional benefit where you can repurchase 100% of your trauma insurance benefit 12 months after a claim is paid. Meaning, you can make multiple claims against a single critical illness insurance policy. However, once reinstated, your trauma insurance policy will typically exclude the traumatic event you previously claimed on.
Despite this exclusion, reinstatement insurance usually offers greater protection should you suffer a different critical illness in future. The trauma reinstatement option is generally provided at an additional fee and might increase your premium.
A trauma reinstatement case study
Jenny is 35, owns a catering business, is happily married and has two children. Two years after the birth of their second child, Jenny was diagnosed with a small malignant tumour on her breast.
Since her critical illness policy’s definitions covered this type of cancer, Jenny was able to make a claim. The surgery and treatment were successful, and Jenny was cancer free. Twelve months later, Jenny’s critical illness policy was reinstated without the need for a medical assessment.
However, after Jenny’s 55th birthday she suffered a heart attack. This event prompted a second trauma insurance claim. Without the trauma insurance reinstatement option, Jenny would not have been able to make the second claim.
Frequently Asked Questions and Answers
How many times can you reinstate your trauma cover?
Providing that you have purchased the reinstatement option, it depends on the definitions and what is outlined in the product disclosure statement. However, most insurers in Australia allow you to reinstate the sum insured on your policy only once. Therefore you would only be able to claim on a trauma policy a maximum of 2 times.
Is additional medical information required when reinstating trauma insurance?
Generally, you do not need to go through any medical assessments when you reinstate the sum insured in your policy. However, be sure to check the definitions outlined in your product disclosure statement before adding reinstatement insurance to your plan.
What’s the difference between the trauma reinstatement and trauma buyback option?
A buy-back option allows you to repurchase the ‘life cover’ or ‘death benefit’ component of joint life and trauma policy. While trauma reinstatement is generally available to stand-alone critical illness policies and allows you to restore your full trauma cover following a claim.
Whether or not you should purchase any of the buyback benefits or insurance reinstatement options depends on your specific requirement and budget. Give us a call on 1300 743 254 if you’d like to discuss your options.