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Income protection vs trauma cover – what’s the difference?

Claire Sutton

By Claire Sutton
Executive Manager, Life Portfolio and New Business

13 June 2019

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Your world may stop when you get sick or injured but, unfortunately, your bills and expenses don’t.

Recovering from a serious illness, injury or medical procedure can take a long time and be quite expensive. If you find yourself unable to work, having some personal insurance in place will help you pay the bills so you can focus on getting better.

Income protection and trauma cover are two of the main types of cover which can help. Many people think they are the same thing but, while both might support you, they are different products which work in very different ways.

What is Income Protection?

If you suddenly find yourself unable to work, having income protection cover means you will get a regular benefit payment (either monthly, fortnightly or weekly if you have a policy with Asteron Life) which can help you with your expenses while you’re not earning your usual income. It can help ease the burden and give you peace of mind, particularly if you run out of sick and annual leave.

Many people are concerned that income protection cover is quite expensive. The good news is that, if it’s something you’re interested in, you can talk to a financial adviser about product options or ways to make cover more affordable in a way that will work for you.

Asteron Life offers a variety of different products that can offer income cover – Income Protection, Mortgage and Living Insurance or our Workability product.

The amount of cover you have, how long it will last, and the wait period before payments begin are also factors that can contribute to the cost of your policy. A financial adviser can help you understand how you could adjust these factors to meet your needs and lower the cost of the policy.

Here are a few features of Income Protection cover:

  • You can claim for income protection if you are unable to work either some or all of your usual hours. You may need to provide ongoing proof of your inability to work and proof of income.
  • Your payments will be based on a few different factors, including the type of Income Protection cover you have, the income you specified when you took out (or last updated) your policy, the amount of income you have lost and your policy terms. For example, some policies state they will only cover up to 75% of your lost income.
  • If you are able to work part time or are gradually working more on a return to work plan, income protection might provide partial cover to top up your income.
  • Income protection usually includes a ‘wait’ period – a specified amount of time you need to be off work before your payments start. This could be any time from 90 days to two years. Usually you choose it yourself but sometimes our underwriters may set a wait period for you.
  • Your payments will stop when you return to work, or until you reach the end of your payment period, the length of which is set when you first take out your policy. Payment periods can vary from a couple of years, or up until the age of 70!

What is Trauma Cover?

Trauma cover, on the other hand, will provide you with a single payment if you are diagnosed with one of the 48 illnesses or injuries listed in our policy, and meet the specific medical definitions.

Most trauma pay-outs are for common conditions like cancer, heart attack or stroke. But other types of conditions that might be eligible are certain types of surgeries, illnesses like Parkinson’s or MS, or the loss of hearing or sight.

Here are a few things to know about trauma cover:

  • If you have been diagnosed with a condition which meets our policy specifications, your trauma cover will be paid out regardless of whether you are still able to work or not.
  • There are no rules around what you can use the money for – it can be for whatever you like. A few of the things people use their Trauma cover for are to cover their income while they’re off work, to pay for treatment, or to renovate their home if the illness has caused mobility issues.
  • Trauma cover is usually set up as a ‘one time’ cover – which means that once you’ve claimed it, it’s gone. There are options that allow you to buy the cover back or make repeat claims, but these usually need to be added when you take out your policy so it’s a good idea to talk to your adviser early about what will suit you best.
  • Sometimes trauma cover is set up as ‘accelerated’, which means that it becomes part of your life insurance. This is cheaper, but it means that if you make a trauma claim your total life insurance will reduce, so it’s worth getting financial advice before you decide how to set up your cover.

Which one should I choose?

Trauma and income protection are both valuable types of insurance cover, but they do different things so it’s important not to consider them as interchangeable.

Whether you want one, the other or both will depend on your needs and budget, but it’s important to understand the benefits and limitations of both types of insurance cover and how they might work together.

Everyone needs something different from their insurance policy, which is why it’s best to talk to an adviser first. They will talk to you about what you’re looking for, your occupation and personal circumstances, and your budget. If you don’t have a financial adviser, we can help you find one.

The information in this article has been compiled from various sources and is intended to be factual information only. Full details of policy terms and conditions are available from Asteron Life Limited or your financial adviser. For advice on product suitability, please contact your financial adviser. While we take reasonable steps to ensure that the information contained in this article is accurate and up-to-date, it is subject to change without notice. Asteron Life Limited and its related companies does/do not accept any responsibility or liability in connection with your use of or reliance on this article.

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Mark's story


Mark's story

Mark is a passionate family man and motorcycle enthusiast. When a motor vehicle accident nearly cost him everything, Asteron Life's Income Protection insurance helped him get back to doing the things he loves.