Trauma Cover; the good, the bad, and the ugly

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Thursday, October 23rd 2025, 6:12PM 7 Comments

I'm pleased to see the baton for discussion has been picked up with Steve Wright's follow-up.

He's right. No product is perfect. You only have to see how ratings are calculated to appreciate that all products have some sort of gap.

QPR approach this by stating 100% is the best product within their ratings, and the rest fall back from there. Strategy and Risk Researcher have subtly different approaches.

At the same time, what might be 100% by QPR's method, the actual best product for the client may be one that's less than half the rating of the QPR best, due to the client's particular circumstances.

Steve's initial comment about using trauma to replace income when income protection is unavailable is correct. But that's after exploring the ability to place income protection in the first place.

A nuanced point that has not been clearly addressed in the discussion and comments to date.

For years, trauma cover was the fallback to no disability cover, and this was quite correct in approach, as TPD wouldn't be available either.

For this reason, I've used Trauma Cover in lieu of IP/TPD coverage many times with clients.

We used to have a horrible product called Essential Disability Cover. You had to have both a qualifying trauma claim and be disabled to receive a monthly benefit.

Clients were better off with the lump sum product, which did not require additional occupational work capacity. The product has disappeared from the menu since.

The advent of Partners Life's specific condition cover changed this approach, where we had a trauma product that responded to disability conditions, again, not perfect, but substantially better than what we had with traditional lump sum trauma cover.

Fidelity's Trauma Multi attempted to fill this gap to a degree, but was more the catalyst for multiple claim trauma than filling the disability gap. With this progressing to continuous trauma with Asteron Life, opening up a Trauma Cover approach more similar to short-term disability with exclusions than traditional lump sum.

While I agree with Steve on the prudent explanation of risks in principle, the discussion has suggested a level of detail that is not typically engaged with by clients.

I'm pretty analytical, and I have some very analytical clients. Our discussions, although comprehensive, don't approach this level of detail. Even at this level, clients often become overwhelmed and suffer from analysis paralysis.

One of the challenges I have found over the years, having transitioned from working within insurers to working as an adviser, is that the reality of advice work with clients often isn't well understood by those within the insurers. And yes, many advisers have said this, too.

The way people with risk and restricted incomes make decisions is quite different from that of well-educated high earners working within financial services. Not every adviser can only work with highly educated high earners.

Math skills, logical thinking, critical thinking and a raft of other taught skills and experience vary greatly. There's another aspect here with those within insurance product and operations; it is the echo chamber problem.

When everyone in the conversation shares the same general knowledge, education, and income demographic, they often overlook those who are different.

Another aspect that hasn't been well covered is the actual risk.

While we can discuss "what ifs?" to death, the reality is that there is a level of risk people are comfortable taking. Life is risky already.

When we get to the point of life risks being up to about 5% lifetime chance of happening, most clients draw a line and go "I'm ok with that". Part of the reason we see clients with disability and trauma but no life cover is that their risk tolerance is higher than average.

It is this overlay of event risk that needs to be considered with large sums of trauma cover that isn't financially sustainable long term. My early plans that included mortgage debt in Trauma Cover levels, almost without exception, had a line through the mortgage debt in some way.

The reality is that an average earner, suffering from a rare cancer, who wants to access some experimental treatment overseas, they are unlikely to have sufficient trauma cover because of cost.

Experimental stem cell treatment for cancer costs approximately $350,000 USD. The very high earners I mentioned earlier might have this level of coverage, but that's only the top 0.66% of earners, not the middle class masses we primarily advise on insurance.

Saying that, I just had a client at age 64 who paid $700k with their trauma claim. Large numbers do happen with the wealthy, but this isn't the norm or average client either.

The real risks for the majority sit around 30-35% with a trauma claim or disability event before age 65, with around 7% dying young or being permanently disabled.

These are the risks most people are focused on, where a good plan around medical, disability, life cover, and trauma cover is often the solution that the budget allows for. But it's not gobloads of trauma cover, and disability cover is frequently limited in some way because of budget.

This isn't based just on my experience as an adviser; it is from my analysis of over 30,000 situations of advice and related decision-making across several hundred advisers.

What we have not been discussing with our advice is the client behaviour bit, which directly drives client choices.

We do something similar with DISC profiling; it lacks a crucial component: an overlay that provides a psychological perspective on the person's behaviour, beyond just their modus operandi. Have a look at Myers-Briggs; it adds this component.

You can have the biggest and best statement of advice going, but the outcome of that, once clients make their decisions, is largely going to be the same as any other comprehensive statement of advice.

The behaviour of the client is the piece that every advice tool and system I have seen fails to take into account. It is also quite surprising how consistent the decisions clients make regarding the types and amounts of cover they choose.

Sure, you're going to get different flavours of things. Agreed vs indemnity/loss of earnings, standalone/accelerated, with/without buybacks, other optional bits and pieces too.

The basic building blocks of a client's risk plan are going to be similar. The difference lies in the execution and the appropriateness of the solution for the client.

Let's be frank, we're talking the difference between buying a suit off the rack vs having it tailor-made. Skill level varies, so does the resulting solution when it comes to advice.

Where this skill level shows up is in two ways:

1. The relative overall premium spend of the client, a well-tailored plan is going to be, apples for apples, cheaper and likely more sustainable. (Yes, it's going to be tweaked and reviewed) It may offer more budget coverage or a more refined structure to manage benefit crossover.
2. The claim outcome when it is called on is substantially better. The average out there is 6-8% of claims are declined, mine are under 1%. Averages being averages, some will have 15-20% declines, and these advisers need a close looking at.

In the short term, AI will struggle to replace specialist insurance advisers due to their knowledge of related underwriting decisions and reinsurance rules. Financial advice that fails to consider the psychology and behaviour of clients will also widely miss its intended mark.

The way clients make decisions and behave is the critical element missing in most discussions about advice and the application of the products. Regulating this aspect will be a significant challenge for the regulator as well.

Clients' understanding our advice is now a legal requirement. Although we provide education and discussion, we cannot guarantee that they will fully understand it.

We face a similar challenge in financial services, where knowledge, skills, and education vary, leading to differing levels of advice experience and mileage.

Nigel Tate's comments about education levels with knowledge and skills for good planning are part of this wider discussion.

Because if all you have is a hammer, everything is a nail.

The stimulated discussion on tackling the various challenges and changes we face is about how we manage and develop our practices accordingly. Funny word that, "practice." We're professionals, yet like other professions, what we do is done in a practice.

We need to strike a balance between being confident enough to know what we are doing and humble enough to ask questions and seek alternative views, ensuring we maintain the underlying reasons for our confidence.

Somehow, that "practice" is what makes professionals professional.

Tags: Disability insurance Fidelity Life Jon-Paul Hale Partners Life Trauma

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