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19 Apr 2023

Choosing your safety net: income protection or trauma insurance?

When you first look at Income Protection and Trauma Insurance, they might seem pretty similar, both designed to help you out financially when you're sick or injured. But it’s their differences that matter.  To find an appropriate fit for you, let’s explore how they work in more detail.


Meet income protection insurance

Think of Income Protection as a financial friend that steps in with a replacement income when you're unable to work due to a serious illness or injury. You can customise this insurance by picking the 'benefit amount', 'waiting period', and 'benefit duration' that suit your needs. In a nutshell:

  • Benefit amount

Income Protection typically covers up to a maximum of 75% of your original (pre-disability, pre-tax) earnings. However, if you have lower expenses or you wish to lower your premiums, you can choose to cover a lower portion of your salary. Just make sure you take into account the size of your emergency fund and the expenses you need to keep paying. 

  • Waiting period

This refers to the time you can manage before receiving your first payment: the longer the wait, the lower your premiums. To determine an appropriate waiting period, ask yourself: How long can I manage without an income? Selecting a longer 'waiting period', if suitable for your situation, can also reduce your premium.

  • Payment period

Your policy’s payment period sets the maximum time you’ll receive payments from your insurer while on a claim. Some people opt for two to five years, while others prefer the security of knowing that, if needed, they will receive replacement income until the age of retirement (age 65). And typically, the longer the payment period, the higher your premiums will be (all else being equal).

Now, let’s talk about trauma insurance

Trauma Insurance (also known as Critical Illness Cover) is a bit different. There's no waiting period and it doesn’t matter if you’re still able to work or not. 

This type of insurance pays you a lump sum upon diagnosis of one of the serious medical conditions listed in the policy – usually including cancer, strokes and heart attacks. Keep in mind that covered conditions can vary among policies, so it's important to understand what your policy covers.

Importantly, you can use the payment as you see fit, and it can even help with costs not generally covered by health insurance, like rehabilitation, caregiving, and extra treatments.

Stand-alone or accelerated? With trauma insurance you have two options. You can either choose Stand-alone Trauma Cover or attach it to a Life Insurance policy (‘Accelerated Trauma Cover). 

The latter is often more affordable, but if you claim on your trauma insurance, that will reduce your Life Insurance  level of cover. For example, if you have a $500,000 life insurance with $100,000 ‘accelerated trauma cover’, and make a trauma insurance claim, the value of your life insurance will reduce to $400,000. That said, some insurers offer a ‘buy back’ option that allows you to reinstate your reduced life insurance amount after a certain period, usually one or two years following the trauma claim. 

Here to help

Need help choosing your financial safety net? Get in touch. We can help you understand the details and how each insurance type can help you achieve invaluable peace of mind.


Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.

Link Financial Group Ltd trading as Mortgage Link and Insurance Link FSP 696731 holds a licence issued by the Financial Markets Authority to provide financial advice. Insurance Link (NZ) FSP 446867 is authorised by that licence to provide financial advice. Please visit for more information and Disclosure information.