By Trudi Vossen, Risk Insurance Adviser
A recent case aired on Fair Go on 12th November which highlights the confusion over what trauma insurance cover is and isn't.
After going blind in one eye, an Invercargill farmer's trauma claim was declined because her medical condition didn't meet her policy's criteria. Blindness in both eyes is covered in her policy whatever the cause, but blindness in one eye is only covered if it is caused by an injury, not a medical event.
The insurer explained that trauma policies could not cover every trauma or traumatic event because "premiums would go up and cover would not be accessible or affordable".
It is important to understand what trauma insurance isn't. Trauma insurance pays out on a select number of specified illnesses. It pays a one-off lump sum if you are diagnosed with one of around 40 specified illnesses or injuries. Examples of the major events or illnesses covered include cancer, heart attack and stroke - 90% of trauma cover claims are associated with these three conditions.
Unfortunately, critical illness is something none of us can afford to ignore. The statistics show that two out of five people will suffer a critical illness before the age of 65 - and this is certainly the area where our clients have the greatest number of claims. One insurer had 41% of claims paid attributed to trauma claim pay-outs (from combined claims for Life, Trauma, Income Protection and Total and Permanent Disability covers).
As part of an insurance plan, we believe that trauma insurance provides two essential benefits:
Economic: In the event you suffer from one of the specified illnesses there is likely to be a reduction in income if you are unable to work. This cover provides a tax-free cash sum to help minimise financial stress whilst you focus on treatment and recovery. It also allows your partner to take time off from their job to support you.
Recovery: Funds from trauma insurance give you the opportunity to take time out following a trauma event. For example, it would enable you to enjoy an extended family holiday. Removing financial worry may also assist in your recovery.
How much trauma insurance should you have?
Trauma cover provides a plan B in the form of a lump sum benefit paid on diagnosis. Again, there is no right or wrong answer for the amount of cover, but we suggest one to two-year's salary. This means that in the event of a serious illness you would have at least one to two year's income in the bank. Consequently, you can focus on recovery without worrying about where the next dollar is coming from.
Some insurers offer free additional benefits such as trauma cover for your children and returning to New Zealand if you suffer a trauma event whilst living overseas.
As advisers, we have handled numerous claims over the years and are here to represent you at claim time. We send the relevant section of the policy document to potential claimants relating to their health issue before we collect medical evidence to submit to the insurer.
Consulting with our financial advisers who are experienced in risk insurance should be your first step.
Trudi Vossen is a Risk Insurance Specialist and Authorised Financial Adviser at Stewart Group, a Hawke's Bay-based, family owned and operated independent financial planning and advisory firm.
The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on a recommendation to a financial product or class of financial product. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or emailing trudi@stewartgroup.co.nz or visit our website www.stewartgroup.co.nz
