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Trauma cover is a great product, but there is more than one flavour. It will pay a lump sum of cash to you if you are diagnosed with a specific health condition. But with so much choice, how do you know what is right for you (and your family)?

Key points

  • What is the purpose of this type of cover?
  • What dishes are available on the Smörgåsbord
  • Indications of price

 

What is the purpose of this type of cover?

Trauma cover is a broad term. When I say trauma, I mean all variants for critical cover, cancer care, progressive or severity-based covers, severe trauma, early trauma and partial covers – to name a few. There are further variants that may pay for multiple claims such as “Continuation” or “Trauma Multi” which can add even further depth to a client’s risk protection. Regardless, the claim is paid by an insurance company upon the diagnosis of a specific injury, illness or health condition.

Many life insurance companies will tout a list of 40, 50 or 70 covered conditions. This can sound impressive when talking with potential clients: the marketing team have done their job. This includes conditions like “Loss of sight in one eye”, “Prostate Cancer”, “Motor Neurone Disease” or “Intensive Care”. To the uninitiated, it can appear quite a macabre (and daunting) list to read.

That said, for many providers, around 1/3 of all claims are for cancer treatment. Indeed, add together cancer, stroke and heart conditions, and these account for 90-95% of all claims for some insurers. By some estimates, 1 in 3 Kiwis who have cancer will recover.

This means then that people may get knocked sideways by a health incident, but have treatment, then presumably return to the workforce. The challenge for many people is how to afford the 6, 12 or 18 months off work while they have treatment and recover. Do companies keep a job open that long? Will they pay the full salary of that individual, for a year and a half, while they recover?

Not likely.

That’s when people use trauma cover. It plugs the income gap for people while they get treatment. In some cases, the lump sum payment from the insurance company might be used to pay for the treatment itself with a private health provider. It is a stop-gap measure to help people recover from a terrible health condition, without the added financial pressures that would exist without it.

What dishes are available on the Smörgåsbord

I’ve mentioned some of the types, but let’s jot them down with a quick explanation for each. There are more, and not all companies provide all options. This is where you will need to speak with your insurance broker, or financial adviser. Some of the terminology you may find is:

Critical, major or severe cover

 

The banks tend to have these types of covers. They are often no frills, skinny products. Often too the diagnosis thresholds are also far tighter, meaning that it is harder to claim with them, than ‘standard’ cover

Cancer care

 

As the name says, this is very specific. Because this cover does not have the other 45-odd conditions listed, it can be a good, cost-effective way to get protection. Knowing that nearly 30% of all NZ deaths are due to cancer, this type of cover can meet a client’s needs affordably

Progressive or severity-based covers

 

These are good products that will only pay based on how severe your diagnosis is. This means that you won’t necessarily get all the payment all in one go, leaving some aside for other potential health events.

Early trauma & partial covers

Different definitions are used among providers. Usually 20-25% of the sum insured is reserved for conditions not covered in the main cover. Designed for conditions that are not immediately “life changing”.

Multi-claim covers; ‘continuation’ and ‘multi’

We know that 30% of people who have a health condition, are likely to have another (often unrelated). Therefore, these multiple claim products protect for that potential risk

 

Remember that this is a guide. You always need to go through the policy document and speak with your insurance agent to fully understand the differences. This list also does not describe the differences between Stand Alone or Accelerated cover, which you can read in a previous article. I am also not discussing the “buy-back’ options available. Each insurance company has a range of additional benefits in an attempt to make their products more appealing than their competitors’.

Indications of price

The table below gives an indication of pricing. We use Quotemonster here at Bolster Risk Management, which is an independent quoting tool to give us the estimates.

Type

Sum insured

Female non-smoker age 30*

Male non-smoker age 40*

Standard trauma (standalone)

$100,000

$13.78 – $17.59

$31.24 – $33.08 –

Severe/ major

$100,000

$5.15 – $9.71

$13.20 – $21.35

Cancer

$100,000

$11.11

$12.78

Severity-based

$100,000

$13.53

$28.76

Multiple claims

$100,000 (per claim)

$15.82 – $19.25  

$35.44 – $37.12

*per month figures – estimations only

As you can tell, there is a good selection in the market. Insurance providers have done well to create their own niche products. The challenge with so much choice though, is how does the client choose? As with all things insurance, remember it is risk protection that you are buying. Working out which risks you are most concerned about is the first step. Ask yourself some key questions; How much budget do you have? Do you want broad cover that will give greatest protection from a range of possibilities? Or do you want to rebalance your dollars to other risk protection products (like mortgage repayment cover or health insurance)? If so, then perhaps choosing more targeted cover is appropriate for you.

 Start with where you are at and think about what is important to you, that will drive your choice.

Dominic Bish

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