How Much Trauma Cover Do You Need in NZ? (2026 Sum-Insured Method)

A real NZ method to size your trauma cover — treatment and non-Pharmac drugs, income while you recover, mortgage breathing room and extra costs added into one sum insured.

Most people pick a trauma cover figure out of thin air. A round number that sounds about right, or whatever the premium gets close to a budget. That is the wrong way round. A trauma sum insured is meant to do specific jobs after a serious diagnosis, and once you list those jobs and price them against real New Zealand costs, the figure tends to set itself.

This guide walks through a sum-insured method an adviser uses: add up treatment and unfunded drugs, the income you would lose while off work, some breathing room on the mortgage, and the extra costs that come with being unwell. The total is your starting figure.

TL;DR: Size trauma cover by adding four things, not by guessing: treatment and non-Pharmac drugs (which can run $25,000 to over $100,000 a year¹), the income you lose while off work (ACC pays nothing for illness⁶), mortgage breathing room, and extra costs. For many households that lands in a six-figure range, but your figure depends entirely on your debts, income and existing cover.

What is trauma cover actually meant to pay for?

Trauma cover (also called critical illness cover) pays a single tax-free lump sum when you are diagnosed with one of the serious conditions listed in the policy, such as cancer, a heart attack or a stroke. It pays on diagnosis, not on death and not on a medical bill. The money is yours to use however you choose.

That flexibility is the whole point, but it is also why people struggle to size it. Health insurance has a clear job (pay for treatment). Income protection has a clear job (replace income while you cannot work). Trauma cover does a bit of both and more besides, so the figure depends on what other cover you already hold and what you would actually need the cash to do.

In practice, a trauma lump sum is used to:

• Fund treatment your health plan does not cover, especially non-Pharmac drugs.
• Replace income while you are off work and recovering, particularly for illnesses ACC does not touch.
• Clear or pause part of the mortgage so the home is not at risk.
• Cover the extra costs of being seriously unwell, from travel to childcare to a partner taking unpaid leave.

These are not rare claims. Cancer is the leading cause of trauma claims paid in New Zealand: in AIA NZ's 2024 data, cancer accounted for 54% of trauma claims and was the single most common reason for one.⁴ AIA alone paid $139.5 million in trauma claims that year.⁵

What does serious illness really cost a NZ household?

The cost of a serious illness is not one bill. It is several, arriving at once, while one income has usually stopped. The four big ones are treatment, lost income, the mortgage, and the extra costs of daily life when you are unwell.

The treatment cost is the one that surprises people. The public system treats cancer, and Pharmac funds a long list of medicines, but not every modern drug is funded. When an oncologist recommends an unfunded treatment, the public system does not pay for it.

Figures current as at 30 October 2025. Drug costs are examples for unfunded indications and depend on the specific treatment, dose and duration; sources ¹²³.

The point of the table is not that everyone faces a $300,000 bill. It is that the costs are real, varied, and arrive together. A trauma sum insured is meant to give you tax-free cash to meet whichever of them apply to you.

How to size cover: treatment, time off work and recovery

Here is the method. Add four components, then subtract what you already have. The figure spec below shows the same idea as a stacked total.

1. Treatment and non-Pharmac drugs. Start with what unfunded treatment could cost if your health plan does not cover it, or covers less than the full bill. Given non-Pharmac drugs can run from tens of thousands to over $100,000 a year¹, many people allow a meaningful slice here, even if they also hold health insurance with a non-Pharmac benefit.

2. Income while you recover. Serious illness typically means months off work with no ACC income support, and few New Zealand households can sustain more than a few weeks without pay.⁹ Estimate the income you would lose over a realistic recovery period. If you hold income protection, this component can be smaller, because the monthly benefit does some of this work.

3. Mortgage breathing room. Decide how much of the mortgage you would want to clear or hold in reserve so the home is not at risk while you focus on getting well. Some people size this to pause payments for a year or two; others to knock a chunk off the balance.

4. Extra costs. Travel to treatment, childcare, home help, a partner dropping to part-time, modifications. These are easy to underestimate.

Then subtract existing cover and savings: any health insurance non-Pharmac benefit, income protection, and the buffer you could reasonably draw on without raiding retirement savings.

This is a framework, not a formula. Your figure depends on your debts, income, dependants and existing cover. Sources ¹²⁶⁹.

Funding non-Pharmac treatment with your trauma sum

The non-Pharmac gap is the single biggest reason trauma sums are sized higher than people expect. Pharmac funds many cancer medicines, but not all, and the unfunded ones are often the modern, expensive ones an oncologist may recommend.

The numbers are not small. Documented examples include Dabrafenib at around $132,000 a year and Ipilimumab at $100,000 to $150,000³, on top of the more commonly cited drugs above. A household cannot rely on Pharmac funding for every modern treatment, and the public hospital will treat you but will not buy you an unfunded medicine.

A trauma lump sum is one way to fund this, because the cash is tax-free and unrestricted. But it is not the only tool, and often not the most efficient one. A health plan with a dedicated non-Pharmac drug benefit is usually the front line for drug costs, because it pays the actual treatment bills up to its limit. Trauma cover then sits behind it for the costs a health plan does not touch, such as lost income and the mortgage. We cover how these two work together in the non-Pharmac drug gap and how cover funds cancer treatment.

The practical takeaway: if you are relying on trauma cover alone to fund years of unfunded drugs, the sum insured needs to be large. If you pair it with a health plan that has non-Pharmac cover, the trauma figure can do its other jobs instead.

How trauma cover works alongside health and income protection

Trauma cover is rarely the only piece. It works best layered with health insurance and income protection, and the right sum insured depends on what those other covers are already doing.

• Health insurance pays the treatment bills directly, including non-Pharmac drugs up to its limit. The more your health plan covers, the less your trauma sum needs to carry for treatment.
• Income protection pays an ongoing monthly benefit while you cannot work, which matters because ACC covers personal injury by accident only and pays nothing for illness such as cancer, heart disease or stroke.⁶ Where you hold income protection, the income component of your trauma sum can be smaller.
• ACC is not a substitute. Even when it applies (accidents only), it pays up to 80% of pre-injury earnings⁷ and is capped at a maximum of $2,418.55 a week from 1 July 2025⁸, so higher earners are not fully replaced, and illness is excluded entirely.

So the order matters. If money is tight, it is worth thinking about which gap hurts most first; we walk through that in health vs trauma vs income protection: which first. Trauma cover is often layered in once the income and treatment gaps are addressed, sized to the jobs the other covers leave open.

Lump sum vs how much to clear the mortgage

A common starting point people reach for is "enough to clear the mortgage." It is a reasonable instinct, because the home is usually the largest debt and the thing most at risk. But clearing the whole mortgage is not always the right size, in either direction.

Sometimes it is too much. If you have substantial income protection and a health plan with non-Pharmac cover, a full mortgage payout on top may be more than you need, and you pay for that in premiums every year.

Sometimes it is too little. Clearing the mortgage does nothing for two years of unfunded drugs at $1,000 a fortnight², or for the income lost while a partner takes unpaid leave. A household can be mortgage-free and still under serious financial pressure.

A more useful question than "what clears the mortgage" is "how much breathing room do we need on the mortgage, on top of treatment and lost income, so the home is never the thing we have to sell?" For some that is the full balance; for many it is a portion that pauses payments and removes the pressure while they recover. The figure follows from the four components above, not from the loan balance alone.

How an adviser sizes trauma cover for your situation

There is no single correct number, which is exactly why a needs analysis helps. An independent adviser compares across major NZ insurers (Partners Life, AIA, Fidelity Life, Asteron, Chubb) and works through the components with you rather than handing you a round figure.

A typical process looks like this:

1. Map the real risk. Your income, mortgage, dependants, savings buffer and existing cover. This sets the size before any premium is quoted.

2. Cost the four components. Treatment and non-Pharmac drugs, income gap during recovery, mortgage breathing room, and extra costs, using current NZ figures.

3. Subtract what you already hold. Health insurance non-Pharmac cover, income protection, and realistic savings, so you do not over-insure and over-pay.

4. Check the policy terms. Whether a claim is paid depends on the conditions covered, partial-payment rules, stand-down periods, underwriting and your disclosure, so the wording matters as much as the number.

5. Review it yearly. Mortgages shrink, incomes rise, dependants grow up. The right sum at 38 is rarely the right sum at 50.

The aim is a figure that matches real costs and your other cover, not one copied from a neighbour or a calculator default.

Frequently asked questions

How much trauma cover do most people in NZ get? There is no standard figure, because the right amount depends on your debts, income, dependants and existing health and income cover. Rather than a market average, it is more useful to size it from the components: treatment and non-Pharmac drugs, lost income, mortgage breathing room and extra costs. For many households that lands in a six-figure range, but yours could be higher or lower.

Why does the non-Pharmac drug gap push the figure up? Because some modern cancer drugs are not Pharmac-funded and the public system will not pay for them. Unfunded treatment can run from $25,000 to over $100,000 a year¹, and some drugs cost several hundred thousand a year³. If you are relying on trauma cover to fund treatment, the sum needs to be large; if you also hold a health plan with non-Pharmac cover, the trauma figure can do its other jobs instead.

Should my trauma cover just clear my mortgage? Clearing the mortgage is a common starting point, but it is not always the right size. It can be too much if you hold strong income protection and health cover, and too little if you face years of unfunded drugs or lost income. It is usually better to size for breathing room on the mortgage plus treatment and lost income, rather than the loan balance alone.

Does ACC reduce how much trauma cover I need? Only for accidents. ACC covers personal injury by accident and pays nothing for illness such as cancer, heart disease or stroke⁶, which are leading causes of serious illness. Even for accidents it pays up to 80% of earnings and is capped at $2,418.55 a week from 1 July 2025⁸, so it does not remove the need for trauma cover.

If I have income protection, do I still need trauma cover? They do different jobs. Income protection replaces income monthly while you cannot work; trauma cover pays one lump sum on diagnosis that can fund treatment, clear debt or cover costs income protection does not. Where you hold income protection, the income component of your trauma sum can be smaller, but the two are not interchangeable.

Will a trauma claim definitely be paid? Whether a claim is paid depends on the terms, conditions, exclusions, stand-down periods and underwriting of the specific policy, and on your disclosure. Trauma policies cover a defined list of conditions and often pay partial amounts for early-stage diagnoses. This is a summary only, so always read the policy wording before relying on it.

This article is general information only and is not personalised financial advice. It does not take into account your particular financial situation, goals or needs. Before acting, consider whether it's right for you and seek advice tailored to your circumstances. Whether a claim is paid depends on the terms, conditions, exclusions, stand-down periods and underwriting of the specific policy, and on your disclosure. This is a summary only — always read the policy wording. Craig Smith Business Services Ltd (FSP712931), trading as Smiths Financial, holds a Class 2 licence issued by the Financial Markets Authority to provide financial advice on personal risk insurance, health insurance, general insurance, KiwiSaver and managed funds, and is a member of the Financial Dispute Resolution Service (FDRS). Written by Henry Smith, Financial Adviser; reviewed by Craig Smith, Principal Adviser. Last reviewed 30 October 2025.