Karen Stevens said her office had received complaints from people who thought their policies should have paid out simply because they suffered a traumatic event.

"It's really unfortunate that trauma insurance was ever called trauma insurance," she said. "Most don't understand what it means."

One man complained that the diagnosis of his kidney tumour and the surgery to remove it had been very traumatic. Therefore, he said, his insurer should pay his trauma claim. However, his tumour was found to be benign, and the trauma policy only covered life-threatening cancer, including “the presence of one of more malignant tumours".

“Although the complainant’s experience was indeed traumatic, and we understand that, there was no evidence of malignancy,” Stevens said. “It was outside the policy cover, so there was nothing we could do to give the complainant the outcome he wanted.”

In another 2016 complaint, a claimant suffered a heart attack, but his trauma insurance claim was declined, because the medical diagnosis did not meet the policy definition of a “heart attack”.

The diagnosis was for congestive heart failure and dilated cardiomyopathy.  While the complainant’s heart was weaker, his heart attack had not caused a portion of his heart muscle to die, as was required by the policy. His condition was, therefore, outside the policy cover and the insurer was entitled to decline the claim. 

Stevens said advisers could be doing more to educate their clients but renaming the cover "critical illness", as some insurers already have, would be a bigger help.

“The policy might cover 12 or it might cover 20 things but then everyone knows if they have one of those specific things they’re covered and if not they aren’t covered. As opposed to calling it trauma which people understand as you’re covered for any trauma.”

Naomi Ballantyne, managing director of Partners Life, said clients and advisers needed to do enough research before buying a policy to make sure they were covered for the things they wanted cover for.

She said people often tried to get their circumstances to fit the requirements of a policy to claim because they realised they needed the money it would provide.

But she said often they discovered that they should have bought a different type of policy. “Trauma is not income protection.”