Ongoing advancements in modern medicine have increased the likelihood of surviving serious illnesses or conditions. We all know of people who are successfully living with cancer, heart problems and diseases that would have been a death sentence two or three decades ago. These days, it’s estimated that one in three New Zealanders who get cancer are cured.
However, the financial implications of experiencing a serious condition can be significant, because they usually affect your ability to earn an income. They might even bring your working life to a complete close. For example, more than 9,000 New Zealanders suffer a stroke every year and 70% of those who survive are left with some level of disability.
By having a type of life insurance called trauma cover, you can minimise the financial impact of a serious health event. The cash injection from a trauma cover claim can help with:
- Replacing lost income
- Covering day-to-day expenses, such as power, phone bills, food and petrol
- Assisting with debt payments, including mortgages and credit cards
- Paying medical costs associated with your recovery
- Exploring alternative treatments
- Financing home alterations, rehabilitation and home assistance.
What is trauma cover?
Trauma cover, also known as critical illness insurance, is a type of life insurance that provides a lump sum payment if the insured person experiences a specified traumatic event or is diagnosed with a critical illness covered by the policy. The purpose of trauma cover is to provide financial support during a challenging time, allowing you to focus on recovery.
In New Zealand, trauma cover typically includes coverage for a predefined list of critical illnesses and traumatic events. Lists of covered events and conditions vary between insurers, but they typically include things like:
- Alzheimer’s disease
- Aplastic anaemia
- Major burns, covering a specified percentage of the body surface area
- Cancer, specified types and stages
- Severe ulcerative colitis
- Colostomy and/or ileostomy
- Severe Crohn’s disease
- Chronic lung failure
- Creutzfeldt-Jakob disease
- Severe diabetes
- Loss of hearing
- Heart conditions, such as heart attack, coronary artery bypass surgery and angioplasty
- Major head trauma
- Accidentally acquired HIV
- Primary pulmonary hypertension
- Severe inflammatory bowel disease
- Chronic kidney failure (renal failure)
- Chronic liver failure
- Systemic lupus erythematosus (SLE) with lupus nephritis
- Meningitis and/or meningococcal disease
- Motor neurone disease
- Multiple sclerosis
- Muscular dystrophy
- Organ transplant, including heart, lung, liver, kidney or bone marrow transplantation
- Severe osteoporosis
- Pacemaker insertion
- Parkinson’s disease diagnosis
- Paralysis or loss of limbs
- Pacemaker insertion
- Peripheral neuropathy
- Severe rheumatoid arthritis
- Loss of sight
- Loss of speech
- Systemic sclerosis
- Intensive care treatment
- Loss of independent existence
What’s the difference between health insurance and trauma cover?
How much trauma cover can you get?
The amount of trauma cover you can get in New Zealand varies between insurance providers and the specific policy you choose. There’s sometimes a limit to how much cover you can get, typically $2 million.
The amount of trauma cover you should consider depends on your financial obligations, lifestyle and personal circumstances. It’s important to assess your needs carefully to determine an appropriate coverage amount. Consider factors such as:
- Debt and financial responsibilities: Think about outstanding debts (such as mortgages, loans and credit card balances) and consider how much coverage you would need to ensure these obligations can be met.
- Income replacement: Work out how much income you would need to replace if you were unable to work due to a serious illness. Consider living costs, bills and any other financial commitments.
- Medical expenses: Factor in potential medical expenses that wouldn’t be covered by the public health system.
- Lifestyle considerations: Consider your desired lifestyle and any specific financial goals you may have, such as providing for your kids or maintaining a certain standard of living.
Keep in mind that higher coverage amounts typically come with higher premiums. It’s essential to strike a balance between coverage and affordability.
Trauma cover extras and options
At their core, all trauma policies are about paying you a lump sum if you’re diagnosed with a listed condition (see above for a typical list). On top of that, insurers make their policies more attractive with inclusions and options. Here are a few examples:
- Trauma cover for children: You could have the option of adding children to your trauma cover. If a child experiences a condition that’s covered, a percentage of the sum insured is released.
- Relocation benefit: If you’re diagnosed with a critical condition while overseas, this benefit pays to get you back to New Zealand.
- Newborn benefit: You can receive a lump sum if your newborn arrives with a congenital condition that’s covered.
- Special events increase: At certain times you can increase your cover without having to provide updated medical information.
- Financial advice: Your trauma cover might pay for financial advice, to help you spend a lump sum payment wisely.
- Counselling: You might be offered psychiatric or psychological counselling if it’s related to a trauma cover claim.
- Payment holiday: You may be able to pause your cover for a while, if you find the premiums unaffordable. However, your cover won’t apply during the payment holiday.
- Premium waiver: If you can’t work due to a covered condition, your insurer will waive your premiums and still maintain your cover.
- Broader cover: Some insurers let you add additional medical events to your policy, beyond the standard list of covered conditions.
- Indexation benefit: You can choose to have your cover amount automatically increased every year, to keep up with the cost of living.
- Cover reinstatement option: If you make a claim and receive the full lump sum payment, your trauma cover usually ends. You might be offered the chance to reinstate cover, however it will probably only apply to conditions unrelated to your original claim.
What does trauma cover cost?
The cost of trauma cover in New Zealand depends on various factors. Here are a couple of ballpark estimates to give you an idea:
- For a 35-year old female non-smoker, $200,000 worth of trauma cover is likely to cost around $45 a month.
- For a 45-year old male non-smoker, $200,000 worth of trauma cover is likely to cost around $60 a month.
These figures are a general guideline and actual prices will vary. Insurance companies consider several factors when determining premiums – things like age, gender, health status, lifestyle and occupation, as well as the amount of cover you want.
What are the exclusions?
Exclusions for a trauma cover policy in New Zealand vary, depending on the insurance provider and the specific terms and conditions of the policy. However, here are some common exclusions that you might find in a New Zealand trauma cover policy:
- A 90-day qualifying period. In many cases, no benefits will be paid if you’re diagnosed with a traumatic condition during the first three months of starting a policy.
- Pre-existing conditions: Trauma policies typically exclude any medical conditions that you had before you started your cover.
- Self-inflicted injuries: Intentional self-inflicted injuries, including attempted suicide or self-harm, are commonly excluded from trauma cover policies.
- Congenital conditions: You might not be covered for congenital conditions that are discovered after you’ve taken out trauma cover.
It’s important to carefully review all exclusions mentioned in the product disclosure statement (PDS) provided by the insurance company. If you have any doubts or questions about exclusions, consult with the insurance provider directly or seek professional advice from a financial adviser.
What medical information do you need to provide to get trauma cover?
To get trauma cover in New Zealand, you will typically need to provide certain medical information during the application process. For example, insurers may request:
- Medical history: A complete summary of your medical history to date, including current medications.
- Family medical history: Insurers may want to know about the medical history of your immediate family members.
- Lifestyle and habits: You may need to provide information about your lifestyle choices, such as smoking or alcohol consumption, as these factors can impact your risk profile.
- Current health status: Insurers may ask about your current health status, including any ongoing medical conditions and treatments.
- Medical examinations and tests: Depending on the amount of trauma cover you want, you may be asked to have a medical exam, provide blood samples or undergo other diagnostic tests to assess your health.
It’s important to be totally honest when providing medical information. Failing to disclose relevant details or providing inaccurate information could result in denial of a claim or cancellation of your policy. If you have any concerns about the information required, talk to the insurance provider or seek guidance from a financial adviser.
How to get started with trauma cover
You usually have the option to purchase trauma insurance either as a standalone policy or bundled up with life cover and/or TPD (total and permanent disability) insurance. If you opt for trauma insurance bundled with life cover, it’s important to note that the pay out from a trauma claim could potentially reduce the amount of life cover provided. To see if this applies to your selected policy, it’s advisable to consult your financial adviser for clarification.
Before you sign up for trauma cover, we recommend you carefully review the terms and conditions of the policy, including the specific list of covered conditions, any exclusions and pay out limitations. Getting help from a financial adviser can help you select a trauma cover policy that best suits your needs.