Diana Clement: Cover for illness creates path to recovery

One firm's trauma or disability cover is often very different to another's. Photo / Northern Advocate

Your health can be a precarious thing. When you're 100 per cent healthy you can't imagine ever being stopped from working or paying your mortgage through accident or illness.

But it happens. And it can be expensive. A knee replacement, for example, can cost up to $23,000, according to Southern Cross Healthcare. That's nothing compared to what it can cost in lost salary or wages if you have to spend a year off work.

The facts and figures on illnesses and accidents that will keep you off work for an extended period of time are also frightening.

As many as five out of 10 males and seven out of every 10 women will be unable to work for at least a month through illness or accident before they turn 65. More than 11,000 people suffer a heart attack each year. About one in three males and one in four females will suffer a form of cancer in their lives.

There are a wide variety of insurances you can get to cover your health and lifestyle. For example, many insurers offer:

* Health insurance

* Trauma insurance

* Income protection insurance

* Permanent disability insurance

* Mortgage repayment insurance

It's impossible here to explain the ins and outs of all these policies, but in brief:

* Health or medical insurance will usually cover you for visits to specialists and private surgery. According to Tower, 4200 people have been waiting more than six months in the state system for treatment.

* Trauma or critical illness insurance pays a lump sum if you're diagnosed with a life-threatening illness named in the policy.

* Disability insurance pays out a lump sum if you become permanently disabled through sickness or accident.

* Income protection insurance pays a percentage of your income on an on-going basis if you suffer from certain named illnesses.

* Mortgage repayment insurance will pay your mortgage instalments if you become ill or disabled.

* Life insurance pays out on your death.

Cover such as trauma, disability or income-protection will often be add-ons to a life insurance policy. With Tower, you can buy standalone income protection insurance or have it tacked on to the Tower Life 360 life insurance cover. You will usually be offered discounts on these add-on products. The cost of the entire shebang, however, can be prohibitive.

Deciding which company's policy to buy is a difficult call. One firm's trauma or disability cover is often very different to another's. Does the one you're buying, for example, cover mental health-related claims? After all, you're just as likely to become mentally disabled as physically disabled.

If you are disabled by illness or accident, the chances are that you can retrain if you can't do your existing job. But not everyone can afford two or three years studying and then to start work again on a graduate's wage.

Financial writer and former insurance broker Andrew Lendnal, who is head of marketing at Grosvenor Financial Services Group, saw the effect of having good insurance on one client who suffered a stroke at the age of 23.

Stroke is the greatest cause of disability in New Zealand, according to the Stroke Foundation of New Zealand. And as Lendnal's client showed, it's not just restricted to older folk.

"When he came to see me he thought he was 10 foot tall and bulletproof," says Lendnal. The young man bought life insurance, and income protection cover, but passed on the critical illness cover, which would have cost him an extra $6 a week.

The stroke caused the client's world to implode. He could no longer work in his chosen field. The income-protection policy through Asteron paid out 75 per cent of his $44,000 salary for the next two and a half years while he retrained as an accountant.

Needless to say that client regretted not having the critical illness cover, which would have paid out a lump sum. He still considered himself lucky to have the income-protection cover.

Some life insurance policies will make an advanced payment of a portion of the sum insured before you die if you are diagnosed with certain conditions such as life-threatening cancer, multiple sclerosis, stroke or severe burns. Sometimes children or partners are also covered.

Such payouts can be a godsend for families where one member falls ill and has to either stop work, or a partner needs to take unpaid leave. The sum insured is often reduced by the amount paid out.

Cost is a huge factor in making a choice. With disability insurance you could choose to be covered for your own occupation or any occupation. You can also get additional cover which ensures you can upgrade your cover regardless of health should your life change through marriage, mortgage or birth of a child.

You can often get inflation-protection options, premium insurance to cover future premiums if you can't pay, and even cover buyback, where you are allowed to buy back some of the cover you have used - such as the trauma cover on a life insurance policy.

Sadly, health-related policies are often riddled with tricky clauses and it is essential to read your policy well.

Just how important it is to read and understand your policy was shown in a recent Fair Go programme when amputee John Fenton found that Sovereign wasn't going to pay out on his $120,000 policy because the fine print stated he needed to lose two limbs or more to qualify as disabled.

The reality is that Fenton, a painter and decorator, can't go back to work with just one leg and was left living on an invalid's benefit of only $250 a week. The payout would have let him retrain, and buy an automatic car.

Another problem is "pre-existing conditions", which aren't covered. That means if you have had an illness in the past or even the pre-cursors of that illness, you won't be covered for it.

There are clauses to beware of with health insurance as well. In some cases, for example, "experimental" medicine or medicine not on Pharmac's approved list won't be covered.

Insurers have tried to use small print to wriggle out of claims that they should be paying. Often this small print can be interpreted in many ways.

In one case the insurance company refused to pay for stents, because there was an exclusion in the policy that precluded payment for "untried or unorthodox technology or treatment". The Ombudsman's office asked three cardiologists whether stents were "untried or unorthodox" and none agreed. Stents had received the European CE Mark three months before the operation. Not surprisingly the Ombudsman ruled in favour of the insured.

In another case a woman's claim for a cystoscopy, including the surgeon's, hospital's and anaesthetist's fees, was declined because the operation was deemed to be a "diagnostic procedure", not surgery. Again the Ombudsman decided in favour of the woman.

Confused? This isn't straightforward stuff. It can be a good idea to get professional help from a risk insurance broker. But do ask lots of questions. For example, how many companies' policies do they compare? Do they get a higher commission from one insurer over another or do they have quotas with one insurer, which they have to meet to gain a higher level of commission.

It's no use buying insurance without being aware of the fish-hooks in the fine print. But nor is it a reason to go without insurance. If you couldn't survive financially or if you need health procedures and can't wait for the state system, or you couldn't do without your income if you became ill or disabled, then you need insurance.