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Sorry, that's not traumatic enough - ombudsman warns of confusion over insurance

Last updated 05:00 23/06/2017


Some people think that anything they suffer that is "traumatic" should be covered.


New Zealanders are discovering the hard way that just because something is traumatic, it does not mean their trauma insurance policies will pay out.

Trauma insurance is a type of cover that pays a lump sum when someone is diagnosed with a severe illness or suffers a serious accident.

Each policy will have a different range of conditions it covers but it is usual for things such as heart attacks, serious cancer, stroke, injuries resulting in paralysis or blindness and burns to be included.

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

READ MORE: Personal Finance: Tragic tale sparked trauma insurance

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

Insurance and Financial Services Ombudsman Karen Stevens says make sure you understand the limitations and exclusions.



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.

He said his insurer should have paid his trauma claim. But his tumour was found to be benign, and the trauma policy only covered life-threatening cancer.

Naomi Ballantyne says people need to get the right policy to start with, not complain when what they've got doesn't suit.


"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. His condition was outside the policy cover and the insurer was entitled to decline the claim.  

"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. Don't ever be afraid to ask questions. 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 proved that it was important that people did thorough research before they bought a policy. 

She said, 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 she said, 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."

She said people who wanted the best possible chance of a successful claim should buy the most comprehensive cover they could. "If you buy something that's cheap and only covers five conditions you can't make it cover 47."

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

- Stuff

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