Sorry, your case is not traumatic enough

New Zealanders are learning the hard way that a traumatic experience does not necessarily result in a payout under trauma insurance.

Trauma insurance pays a lump sum in cases of severe illness such as a heart attack or stroke, or after a serious accident resulting in paralysis or blindness and burns.

It is often sold as ideal protection for customers who need to cover extra costs if they become seriously ill.

But Insurance and Financial Services Ombudsman Karen Stevens said many people did not understand that a trauma policy would pay out only for the conditions stated in the policy wording.

Some thought that anything they suffered that was ‘‘traumatic’’ should be covered, she said.

In one case her office dealt with, a man complained the diagnosis of his kidney tumour and the surgery to remove it had been traumatic.

But his tumour was found to be benign, and the policy only covered life-threatening cancer.

‘‘Although the complainant’s experience was indeed traumatic, and we understand that, there was no evidence of malignancy,’’ Stevens said. ‘‘It was outside the policy cover, so there was nothing we could do to give the complainant the outcome he wanted.’’

In another 2016 complaint, a claimant suffered a heart attack, but his trauma insurance claim was declined, because the medical diagnosis did not meet the policy definition of a ‘‘heart attack’’.

The diagnosis was for congestive heart failure and dilated cardiomyopathy. While the complainant’s heart was weaker, his heart attack had not caused a portion of his heart muscle to die, as was required by the policy.

‘‘Trauma is not a general insurance to provide cover if you suffer any traumatic medical experience, or if you cannot work because of ill-health,’’ Stevens said.

‘‘When you sign up for a policy, make sure you understand the limitations and exclusions. Establishing that understanding upfront could save you from a lot of disappointment in future.’’

Naomi Ballantyne, managing director of insurance firm Partners Life, said most policies would have a catch-all to capture the most serious illnesses – such as a clause that the policy would pay out if someone was on life support for three days or in intensive care for five.

She said Stevens’ cases highlighted the importance of thorough research before taking out such a policy.

In one recent case her firm had dealt with, a woman had been rushed to hospital to have her baby by caesarean. ‘‘She wanted to claim on her trauma policy. They felt it was the equivalent of being in intensive care.’’

But because it was a relatively normal event, the claim was not paid.

Ballantyne said people ‘‘got dollar signs in their eyes’’ because there was often big money involved with trauma claims. Some would try to fit their circumstances to make a claim.

‘‘At that point in time they have need of that money which maybe a policy would have delivered if they had bought a different product that maybe they were offered and refused. Trauma is not income protection.’’

Stevens said consumers would be better served if the policy was rebranded critical illness insurance.