Lump-sum cover for a serious illness.
Suggested trauma cover
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Income component
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Your breakdown
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What a lump sum on diagnosis is really buying you
Trauma cover, also sold as critical illness insurance, pays a single tax-free lump sum the moment you are diagnosed with one of the serious conditions listed in the policy, commonly cancer, a heart attack, or a stroke. The money is not tied to receipts or to being unable to work. It is yours to deploy however the diagnosis demands. That flexibility is the whole point. A serious illness rarely arrives as a tidy monthly shortfall. It arrives as a wave of costs and disruption all at once, and a lump sum meets it head on. This calculator helps you size that lump sum so it is large enough to matter without paying for cover you will never need.
It suits anyone with a mortgage, dependants, or simply a lifestyle that would buckle if income stopped and bills climbed at the same time. The tool adds up four things you can shape: years of income to replace, a buffer for treatment and travel, and debt you would want gone.
Stacking the four building blocks
The cover figure is built from parts rather than guessed. Years of income covers the gap while you step back from work to recover, or while a partner reduces their hours to care for you. The treatment and travel buffer recognises that not everything is publicly funded: some drugs, private specialists, and the cost of travelling to a main centre for treatment all fall on you. The debt component lets you wipe or shrink a mortgage so the household runs on far less. Add them and you have a defensible number rather than a round guess.
A $80,000 earner with a mortgage to tackle
Take someone earning $80,000 who wants two years of income behind them, a $50,000 cushion for treatment and travel, and $40,000 knocked off the mortgage. The build-up looks like this.
That points to roughly $250,000 of cover. The chart breaks the lump sum into its three slices so you can see what is driving the number, and adjust the part that does not fit your life. Someone debt-free would zero the third slice; someone facing a long recovery might lift the income years.
Where trauma sits beside your other cover
Trauma is not a substitute for income protection or life cover; the three do different jobs. Income protection pays a monthly benefit while you cannot work, which is a steady stream rather than a lump. Life cover pays out on death. Trauma fills the gap in between, the survivable-but-serious diagnosis where you live, but your finances take a heavy hit and you want capital now, not a drip. Many households pair a smaller trauma sum with income protection so the lump handles the immediate shock while the monthly benefit covers the long tail. Reviewing all three together stops you over-insuring one risk and leaving another bare.
A quiet advantage worth knowing: the payout itself is tax-free in your hands, and because New Zealand has no general capital gains tax, money you then invest is not taxed on its growth the way it would be in some countries, though any interest or dividends it earns are. That makes trauma cover an efficient way to put real capital behind you at the worst possible time.
Is a trauma insurance payout taxed in New Zealand?
No. A trauma or critical illness benefit paid to you personally is a tax-free lump sum, and you do not declare it as income to Inland Revenue. The premiums you pay for personal cover are generally not deductible either, which is the trade-off. If a business or trust owns the policy the tax treatment can differ, so get specific advice in that case.
How much trauma cover do most people actually take?
There is no single right answer, but a common starting point is enough to clear or heavily reduce the mortgage plus a year or two of income, which for many households lands somewhere between $100,000 and $300,000. The honest driver is your debt and how long you would realistically need to step back. Use the components in this tool to build a figure from your own life rather than copying a headline number, then check the premium fits your budget, because cover you cancel when money is tight protects nobody.