With so many options available, the insurance world can be confusing to navigate. Despite this, finding the correct type and level of cover at the right price is possible.

Two lifestyle insurance products sometimes considered to be interchangeable are Trauma Insurance (also known as Serious Illness Cover), and Income Protection.

While Trauma Insurance has its place, it’s no substitute for comprehensive Income Protection. If you’re off work and unable to generate income, how long will a lump sum payment – even a substantial one – last? Bills don’t stop just because you have – if anything, they could substantially increase due to medical expenses.

Trauma Insurance

Trauma Insurance helps you financially recover from serious illness or injury with a one-off lump sum pay-out. It provides a payout if you suffer from one of the specific illnesses or injuries listed on your policy but won’t provide ongoing payments like Income Protection. It can be reinstated again after a claim if you choose, but the revised policy will exclude the condition you have claimed on.

Income Protection

Income Protection helps you pay the bills until you can work again. It provides a payout for a pre-agreed amount after the wait-period for every month you’re unable to work. You select the wait and payment- period at application time. When compared with Trauma Insurance, Income Protection covers you for longer and can be used multiple times up until the age of 65 or 70.

Be aware of the quality of most bank Income Protection products. Many of their policies only pay out for a maximum of one to two years, while real Income Protection, will continue to pay out for as long as you’re off work through to age 65 or 70, with adjustments for inflation along the way.

Both covers have their place, and when set up correctly, can complement each other at claim time. Some of New Zealand’s leading insurers like Asteron Life and Fidelity Life offer hybrid Income Protection policies which provide lump sum payments with no stand-down period for specific injuries and illnesses.

Times have changed as have Income Protection and Trauma Insurance policy wordings – if you haven’t reviewed your policy in the last few years – now is an excellent time to see what else is available.