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What is Trauma Insurance Cover in NZ?

Trauma can be a confusing insurance cover. This is because of the way it is defined.

Most of us have had what we consider to be a traumatic event in our lives – either very serious or just really annoying. This can range from losing your phone or missing a connecting flight. But this is not how insurance companies define trauma.

Here is an example of their definition:

“If during the Cover Term, the life assured or Dependent Child first suffers a Covered Condition and we accept the claim, then we will pay the Trauma Cover Sum Insured or other Benefits as appropriate up to a maximum of the Life Cover Sum Insured provided under this policy for the life assured, reduced by any outstanding total premiums due but not paid at the date of claim.”

So that makes it all clear, right?

Probably not.

Instead of calling it Trauma Insurance cover some insurance companies call it ‘Critical Illness’ cover. This is probably a more accurate way of describing it and, at least, gives you some clue as to what it really means.

In the simplest of terms, Trauma Insurance covers you for certain defined illnesses or medical conditions.

These conditions are listed by the insurance company and they have definitions relating to the severity and developments of these diseases. And these conditions cover most of the BIG ones – like cancer, heart attack, and stroke – and depending on your policy - there can be up to 49 illnesses covered.

So, what does Trauma Insurance actually cover?

Here’s the list:

  • Alzheimer’s Disease
  • Advanced AIDS
  • Aplastic Anaemia
  • Blindness
  • Cancer
  • Cardiomyopathy
  • Meningitis and/or Meningococcal Disease
  • Motor Neurone Disease
  • Multiple Sclerosis
  • Paralysis (Paraplegia, Quadriplegia, Diplegia, Tetraplegia and Hemiplegia)
  • Chronic Kidney Failure
  • Chronic Liver Failure
  • Chronic Lung Failure
  • Cognitive Impairment
  • Coma
  • Creutzfeldt-Jakob Disease (CJD)
  • Parkinson’s Disease
  • Peripheral Neuropathy
  • Primary Pulmonary Hypertension
  • Severe Peripheral Vascular Disease
  • Deafness
  • Dementia
  • Diabetes
  • Encephalitis
  • Heart Attack
  • Intensive Care
  • Systemic Sclerosis
  • Terminal Illness (standalone only)
  • Severe Congestive Cardiac Failure
  • Stroke*
  • Loss of Independent Existence
  • Loss of Limb and Sight
  • Loss of Limbs
  • Loss of Speech
  • Major Burns
  • Major Head Trauma
  • Muscular Dystrophy
  • Organ Transplant
  • Optional Covered Condition: Total and Permanent Disability (own occupation only).

    Pretty exhaustive and suffering from one of these conditions would certainly mean you would have to make pretty dramatic changes to your life.

    And that is really what Trauma cover is about. It will not cure your illness but the money will enable you to make the required changes to your life, take away some of the financial stress and make sure you are able to get the treatment you will need.

    Okay, but what if my sickness is not on that list?

    If you have a cold or flu that will probably not meet the criteria (unless it develops into, say, Chronic Lung Failure). But if it is associated in any way with one of the covered conditions, we would certainly be making the argument on your behalf that the insurance company should pay up.

    Because our responsibility is to you. You are our client. We do everything we can to ensure that the insurance company treats you fairly. If we believe that you have a legitimate claim, we will fight to make sure you get paid. This can include taking the case to the insurance Ombudsman. Fortunately, we have only had to do this once because we are often able to negotiate a settlement with the Insurer.

    But success in this can depend on the individual insurance company and the way their policies are written (And we will get to that in a moment).

    Other benefits of a Trauma Insurance policy:

    Most trauma policies offer some additional benefits:

    Bring you home: if you have been working overseas and suffer a Trauma event travel costs for you and a companion to return to NZ will be paid.

    Treatment away from home: if you live away from easy access to the treatment you will receive a benefit for a support person, their transport costs, and also accommodation for up to 10 days.

    Expert advice: if you need help in managing the funds received from a Trauma payment you can use a financial planner to help you and their costs will be paid.

    Again, it is important to note that NOT all policies provide these additional benefits. It is worth checking that yours does.

    Are all Trauma Insurance policies the same?

    The answer here is that they are not.

    Without getting too technical, it all depends on how the insurance company has defined an illness and the level of severity before it will payout. And the variations in these definitions can mean the difference between having your claim accepted or denied. And, sadly, most people do not look at this stuff. But remember, the devil is in the detail!

    What kind of Trauma Insurance policies are there?

    ‘Once upon a time’ Trauma was a simple policy. You got a disease and you got a lump sum payout! Of course, once you got that money that policy was ‘completed’ which means the policy came to an end and you no longer had any trauma cover – and were unlikely to ever get cover again!

    But nowadays an illness that was once a death sentence can now be handled by surgery or medication giving you your life back.

    So, as medical advances were made, insurance companies had to redevelop their Trauma covers and there are now several different types of cover you can get.

    Here are some of the different types of trauma cover available:

    Trauma: this is the standard cover. It is the basis on which all Trauma covers are built and a policy that is worth having. Because of the ease of making a claim, it can be one of the more costly policies.

    Here is an example of why:

    “John is 45 years old and a builder. One day he wakes up feeling a bit unwell – chest hurts, a bit of trouble breathing, definitely not feeling the best. His wife suggests he should go to the doctor and, naturally, he doesn’t! Instead, he struggles on! After all, he has things to build! A couple of days go by and John is still feeling poorly. His wife finally makes an appointment with the GP and John, grudgingly, goes. The GP checks him out and can’t make an immediate diagnosis so gets John to do some blood tests. Later in the week, John starts to feel better. Then he gets a call from the doctor. Seems that John has suffered a small heart attack. Not enough to be an emergency but certainly something they need to keep an eye on.

    At that point, John contacts his Insurance Broker. Time to make a claim on his Trauma cover (the money will mean he can buy the new digger he needs). Now because John had a heart attack this meets the criteria for Trauma his claim gets paid. Even though he has had no real health effects and hasn’t even had to take time off! He spends all the insurance money on his new digger!

    Of course, this was never the way a Trauma policy was designed to work but John’s claim is perfectly legitimate and he can spend that money any way he chooses.

    But about a year later John has a massive heart attack that puts him in a wheelchair and means he can no longer work. But, when he now really needs the money from his Trauma policy he cannot claim again so he now has no cover and no income.”

    While this is not a real story it is based on actual people and cases.

    Severe Trauma: this cover can be taken alone or in conjunction with Trauma. This policy covers all the same conditions as a Trauma policy but the definition of the severity of the disease is higher.

    For instance, if you were to be diagnosed with cancer, while a shock and frightening, it would possibly not stop you from working and living a reasonably normal life (and you could make a Trauma claim). But should this blasted cancer get worse and really start messing with your life, you can make a second claim under this policy. (John could have done this if he had this policy in conjunction with his trauma cover).

    As a rule of thumb, a Severe Trauma policy will be cheaper than a standard Trauma policy because it has more rigorous requirements to be able to make a claim.

    Moderate Trauma: This is a relatively new form of Trauma cover. Insurers recognized the gap between Trauma and Severe Trauma policies and their answer was “Moderate Trauma” (Nobody has ever said that insurance companies are creative geniuses).

    But this cover sits right in the middle of the other Trauma covers. Its requirement to claim is higher than Trauma but lower than Severe Trauma. It, too, is less expensive than standard Trauma.

    Multi-Trauma: As we mentioned a Trauma policy usually gets paid in one hit and then ends. But Multi-Trauma allows up to 5 claims in the life of the policy. Each claim will pay 20% of the total benefit. What?

    For example:
    Assume you have a Multi-Trauma policy for $250,000.
    On the first claim, they will pay $50,000.
    On the second claim, they will pay $50,000.
    On the third claim……
    You get the idea. So 5 x $50,000 = $250,000.

    There are some rules and criteria for this policy but, in essence, this is the basic idea.

    I’m pretty healthy but what about my kids?

    A parent’s worst nightmare is that their children get seriously ill. While we always hope it won’t happen, the truth is we have a hospital (Starship) that is dedicated to dealing with children that are suffering from these diseases. Sadly, diseases like cancer have no consideration for age.

    Having a child suffering from a major condition is not only stressful but can also be very expensive. Not in the medical sense because that will be taken care of by the Government but parents may have to give up work (or reduce the hours they can work), travel to and park at the hospital (and we all know how expensive that parking is!), pay for additional meals for themselves or their children, pay for babysitting for their other children and about a dozen other hidden costs.

    If you have any of the Trauma policies your insurance cover should provide $50,000 in FREE cover to any and all of your children on the same terms and conditions as you have under that policy. This will cover all of your children individually (even if you have a rugby team worth!) meaning that if (heaven forbid) every one of them got seriously sick each would receive $50,000. There are some age differences in various Insurers’ policies but they will usually be covered to the age of 21.

    Now this money will not make your child better (unfortunately) but it will definitely reduce some of your financial worries at a time when your child needs your full attention.

    Not all policies provide this cover (which is worth having) so this is worth checking.

    So, which is the best Trauma Insurance policy to have?

    Every policy has its benefits.

    If money is no object (Yeah? Right!) get the biggest Trauma Insurance policy you can. And with it get the option to ‘buy back’ the trauma cover if you make a claim. This simply means you have the option to apply to have your Trauma cover reinstated and start making the payments again

    You will probably have to wait 12 months before you can ‘buy back’ the trauma and it will be ‘underwritten’ again (we will be explaining the underwriting process in a different blog). Chances are that the condition for which you made the first claim will be excluded (the insurer will not cover that one again).

    Our recommendation would be that a mix of each of these different types of policy gives the best cover. It can be tricky establishing the right level of cover and, of course, cost, and that mix also depend on your individual situation, so we would recommend getting some independent and unbiased advice on how to structure this.

    How to Claim Trauma Insurance:

    Claims under your Trauma policy can sometimes be tricky. As we have said what you consider to be a Trauma may not be seen in the same light as an Insurance company. But if you meet the stated criteria your claim should be paid out.

    But even that can be an issue. Because while your medical professional may have their opinion it is possible that the Insurance Company’s medical professional (and they do have them!) may have a different opinion.

    And it is here that all the stories about Insurance companies NOT paying outcome from.

    The truth is that personal insurance companies pay out over 85% of all claims. Sadly, the same cannot be said for those companies that insure your ‘stuff’.

    And part of our responsibility to you, as our client, is to ensure that your claims are treated fairly and speedily, that we always act in your best interests and advocate for you with the insurance company.

    Now, while most Insurers have a decent record in claims resolution, none of them will put their claim policy in writing.

    Except one.

    And this is what their policy says:

    “Where the evidence received does not clearly identify to us whether a claim should and/or could be accepted or declined, and where no further clarifying evidence is able to be obtained (provided access to such information has not, in our sole opinion, been prevented by the actions of you or the life assured) we undertake to accept the claim.”

    Let’s unpack that.

    Think of a scale that goes from Black to White.

    Claims that fall into the Black part of the scale will be declined. Usually, this means they are bad faith attempts to get money from the insurer (and ‘yes’ that does happen!).

    White claims will be paid.

    Now between the Black and the White is a large area that is Grey. This ‘grey area is where most claims will fall.

    Grey claims will be paid, based on the above policy wording, if there is no reason or additional evidence available to show that a claim should be declined. In that case, the benefit of the doubt is applied and the claim is paid.

    This can be translated to the simple phrase: “If it’s grey, we pay!” and we can attest to the fact that they stick to that policy. In our opinion, all policies should include this kind of wording.

    So that is an introduction to Trauma.

    Now the reality is that the lucky among us will get through this life with only a few bumps and bruises along the way. But the unlucky will have to face their worst fears. And none of us know who will be lucky or unlucky.

    Having a Trauma policy is a way of leveling the odds.

    Now, maybe you will never use it and may consider the money you spent to be wasted.

    But maybe you will need it and, in that case, you will seriously need it. At which time you will be really relieved that you have this cover and the money spent on it will seem like a very good investment.