Kinds of cover, and what each one actually does
Four products get sold to New Zealand households, and they are easy to confuse because the marketing for all four sounds the same. They are not the same: they pay different amounts, at different times, triggered by different things. Here is what each one is.
Life cover
Life insurance is a contract with an insurer: you pay a premium, and if you die while the policy is in force the insurer pays an agreed lump sum to the people or estate you nominated. It pays nothing while you are alive, and it is the money, not the loss, that it replaces.
Read about life cover →Income protection
Income protection pays a monthly amount while you cannot work because of illness or injury. It is not a lump sum: it replaces part of your income, starts after a waiting period set in the policy, and stops at the end of a benefit period, at recovery, or at a stated age.
Read about income protection →Trauma cover
Trauma insurance, also called critical illness cover, pays a lump sum if you are diagnosed with one of the conditions the policy lists, and you survive a short period afterwards. It pays whether or not you stop working, and you can spend it on anything.
Read about trauma cover →Mortgage protection
“Mortgage protection” is a label rather than a single product. In New Zealand it is used for cover aimed at the home loan: sometimes a life policy sized to the loan, sometimes cover that pays the repayments while you cannot work. What you hold depends on which one you were sold.
Read about mortgage protection →The difference in one table
| Cover | What triggers it | What it pays |
|---|---|---|
| Life cover | Death while the policy is in force. | A single agreed lump sum, called the sum insured, fixed when the policy is taken out and adjusted afterwards only if you and the insurer agree to change it. |
| Income protection | Being unable to work because of illness or injury, as the policy defines it. | A regular monthly benefit, calculated from your income when the policy was taken out or when you claim, depending on the policy. |
| Trauma cover | Diagnosis of a listed condition, meeting the definition written in the policy, and usually surviving a stated number of days. | A lump sum, up to the sum insured. |
| Mortgage protection | Death, or being unable to work through illness or injury, or both — depending on the policy. | Either a lump sum sized to the loan, or a regular amount covering the repayments for a period. |
This table describes kinds of cover in general. Individual policies differ, sometimes a great deal, and the policy wording is the only thing that decides what yours does.
Two more kinds we have not written up yet
TPD cover (total and permanent disablement) and funeral cover are both sold in New Zealand and neither has a page here yet. We would rather have no page than a thin one, and both turn heavily on definitions we want to get exactly right. They are next.