When it comes to allocating your limited funds to arranging the right insurance coverage, it can be like completing a jigsaw puzzle.

One of the hardest decisions is whether to pay for Trauma Insurance, or Income Protection.  The latter replaces lost income, whereas a Trauma cover is a lump sum that you can spend according to what's best.

Trauma cover insurance is paid on diagnosis of one of the serious/traumatic conditions stated in the policy document.  It provides extra money to pay expenses regardless of whether or not you are able to work.  It typically doesn't cover everything, for example, mental health.

Income Protection can only be collected when you are unable to work.  It is less than you are used to taking home and is tied directly to what you earn.  The amount paid is a percentage of your earnings, e.g. usually less than 75%.  Also, other earnings or income (like ACC) reduces what is paid.

One of our insurance industry's reliable commentators is Russell Hutchinson of Chatswood Consulting and he wrote this article which goes someway to answering this dilemma.

Both of these products have many features and can be complex products to get your head around, so seeking qualified advice is desirable.  If your budget is very tight, there are more simplified product options available from banks or those insurers who do distribute through Financial Advisers.

So, it's likely to come down to a trade-off between product features and cost.  But, having something is better than nothing!