Income Protection or Trauma Insurance?

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Navigating the insurance world can be confusing due to the multitude of options available. However, it is possible to find the right type and level of coverage at a reasonable price. Two insurance products often considered interchangeable are Trauma Insurance (also known as Serious Illness Cover) and Income Protection. While Trauma Insurance has its merits, it cannot fully replace comprehensive Income Protection.

Trauma Insurance provides a one-time lump sum payment to help you recover financially from a serious illness or injury. It covers specific conditions listed in your policy but does not offer ongoing payments like Income Protection. If you are unable to work and generate income, even a substantial lump sum payment may not last long enough to cover your bills, which could potentially increase due to medical expenses. Furthermore, if you make a claim, the policy can be reinstated but will exclude coverage for the condition you claimed on.

On the other hand, Income Protection ensures you can pay your bills until you can return to work. It offers regular monthly payments for a predetermined amount after a waiting period, for the duration you are unable to work. You have the flexibility to select the waiting and payment periods that suit your needs. Unlike Trauma Insurance, Income Protection provides coverage for a longer period and can be utilised multiple times until you reach the age of 65 or 70.

It is important to be cautious about the quality of certain bank-provided Income Protection products. Many of these policies only pay out for a maximum of one to two years. Genuine Income Protection, on the other hand, continues to provide payments for as long as you are unable to work, extending until age 65 or 70, with adjustments for inflation over time. Some leading insurers in New Zealand, such as Asteron Life and Fidelity Life, offer hybrid Income Protection policies that combine lump sum payments with no stand-down period for specified injuries and illnesses.

Times have changed, and so have Income Protection and Trauma Insurance. If you haven't reviewed your policy in recent years, now is an excellent time to explore other available options.

Please keep in mind that this article is intended for informational purposes only and should not be considered as financial advice. It is always recommended to consult with a qualified financial professional before making any financial decisions based on your individual circumstances.


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