How much trauma cover do you need

Trauma cover — sometimes called critical illness or living assurance — pays a lump sum when you are diagnosed with one of the conditions listed in the policy and survive the stand-down period, which is usually fourteen days. Cancer, heart attack and stroke account for the great majority of claims in this market.

The mistake people make when sizing it is to treat it as income replacement. It is not. Income protection replaces income month by month for as long as you cannot work; trauma pays once, quickly, and lets you make decisions you could not otherwise afford to make. Stopping work for six months while you have treatment. Flying a parent over to help. Paying for a drug that is not funded. Renovating a bathroom so it works with a wheelchair.

So the honest sizing question is not “what is my salary times some number”. It is “how many months would we want to be able to stop worrying about money, and what might we have to pay for that nobody has budgeted for”.

Work through these four components and add them up. Every one of them is a household-specific figure and there is no market average worth quoting.

1. 1Time. How many months would you want the earner, and possibly a partner acting as carer, to be able to step back from work? Multiply by household monthly costs.
2. 2Debt relief. A lump sum used to pay down or clear the mortgage permanently reduces the monthly outgoing, which is often worth more than holding cash.
3. 3Treatment and travel. Costs not funded by the public system or by health insurance, travel to a main centre for treatment, accommodation for family.
4. 4Adaptation. Changes to the house or the car if the condition leaves a lasting limitation, plus a margin for the things nobody thinks of in advance.

What it actually costs, and why we will not quote you a figure

We publish premium tables for life cover because there is a reliable published New Zealand source for them. There is no equivalent public data set for trauma, so we do not have a figure we would be willing to put in a table. What we can tell you is the shape of it.

Trauma premiums for a given sum insured run well above life cover at the same age. The reason is straightforward: the probability of being diagnosed with a listed condition before 65 is far higher than the probability of dying before 65, so the insurer is pricing a much more likely event. That gap widens with age, and it widens sharply through the fifties. Standalone trauma costs more than accelerated trauma attached to a life policy, because accelerated cover reduces the life sum insured when it pays and standalone does not.

These are the details that decide whether the cover does what you expected. Read them before you compare on price.

• How many conditions are covered, and — more importantly — how the common ones are defined. Cancer definitions and their exclusions of early-stage disease are where claims are won and lost.
• Whether the policy pays partial benefits for less severe conditions, and whether a partial claim reduces the full sum insured.
• Whether there is a buy-back option letting you reinstate life cover after an accelerated trauma claim.
• Whether you can claim more than once, and what the reinstatement rules are.
• The stand-down period, and any waiting period before certain conditions are covered at all — cancer and heart conditions often have a three-month initial exclusion.
• Whether children can be added, and at what age the child cover ends.

Every New Zealand insurer writes how much life insurance do you need to its own wording, and the words are where the money is. Two policies that look identical on price can pay very differently when it matters. Closing that gap is the entire job of an adviser.

• Condition lists look similar in marketing and differ substantially in wording. Comparing them properly is specialist work.
• Severity-based products pay graded amounts rather than all-or-nothing, which suits some households and not others.
• An adviser can split cover — some accelerated, some standalone — to get a workable sum insured at a premium you will keep paying.
• Where health history is an issue, trauma is often the cover an insurer will load or exclude first, and appetite differs sharply between insurers.

There are three ways to buy life cover in New Zealand, and they are not equivalent. You can buy direct from one insurer, which means you see one product range and one underwriting appetite. You can buy through your bank, which usually means a single insurer’s product sold under the bank’s brand, often with narrower definitions. Or you can go through an adviser, who quotes several insurers at once and is required to put your interests first.

The premium you pay is the same either way. Insurers build adviser commission into their pricing whether or not an adviser is involved, so going direct does not get you a discount — it just removes the person whose job is to argue your corner at application and at claim time.

• An adviser can see which insurer is currently taking your health history on standard terms, and which one will load or exclude it.
• An adviser can structure cover across two insurers if that produces a better outcome than putting everything with one.
• An adviser handles the underwriting back-and-forth, and is the person who chases the claim when a family is least able to.
• An adviser has to document why the recommendation suits you, which is a written record you can hold them to.

We are a referral service, not an insurer. We do not quote premiums and we do not sell policies. What we do is put you in front of one licensed New Zealand adviser who can compare the market properly.

1. 1

   You tell us what you are looking at

   The form takes about a minute. Nobody asks for your medical history on a web form — that conversation happens with the adviser, properly, and only once you have decided to proceed.

2. 2

   An adviser calls you

   A licensed New Zealand adviser talks through your situation: who depends on you, what you owe, what you already have in place, and what you are actually worried about.

3. 3

   They compare the market

   The adviser quotes across the major insurers, checks which of them will take your health history on the best terms, and puts the options side by side in writing.

4. 4

   You decide, in your own time

   There is no obligation and no cost to you. If the answer is that you already have enough cover, a good adviser will tell you that.