Trauma worries for insurers and customers
New Zealanders are still being caught out by trauma insurance not covering what they expect it to.
Trauma insurance is a type of personal cover that pays out a lump sum if you develop one of a range of conditions that are specified in the policy.
These are usually things such as cancer, stroke or heart attack.
Statistics show New Zealanders spend $427 million a year on trauma policy premiums. Trauma policies now cover a wider range of conditions than they did in the past, with more generous cover.
Insurance and Financial Services Ombudsman Karen Stevens said about 5 per cent of all complaints to her scheme in the past five years related to trauma insurance.
‘‘Trauma insurance is very specific. A common issue is that people believe trauma insurance will provide general cover for any traumatic experience, or if you cannot work because of ill health. It won’t,’’ she said.
‘‘Financial advisers could do more to educate their clients about trauma insurance policies.
‘‘The type of conditions that will be covered will be listed in the policy, and the trauma benefit will only be paid out if the insured has suffered from one of those specific and listed conditions.’’
She said calling it ‘‘trauma’’ insurance was too generic and renaming it ‘‘critical illness’’ cover, as some insurers already have, would help.
One customer complained to her office when his congestive heart failure and dilated cardiomyopathy did not meet the insurer’s criteria for a heart attack.
The ombudsman sided with the insurance company because the client needed to be able to show that a portion of his heart muscle died because of his heart attack, and he could not do so.
Robyn Bartlett, life product manager at Asteron Life, said trauma insurance was one of the most confusing personal insurance products on the market.
She said Asteron Life’s policy covered 44 specific conditions and procedures and each one would have a medical definition that had to be met to receive a payout.
The insurance industry has struggled with the policies too, because some have allowed big windfalls – sometimes payouts of $1 million – when people suffered conditions that put them off work for only a couple of months. That put pressure on premiums.
A customer complained to the Insurance and Financial Services Ombudsman on discovering that his heart attack did not meet the definition in his policy.