The ULTIMATE GUIDE to Life Insurance in NZ - 2023
In New Zealand we have a ‘she’ll be right’ attitude, despite us all knowing that it quite often isn’t. You can probably think of a friend or acquaintance even right now whose life is being turned upside down due to a health-related issue. In these circumstances, problems are often made worse by financial pressure.
Personal insurance is critical to your financial plan, whether you’re a single person, couple or family. Life Insurance is undoubtedly one of the most important types of cover you need to consider in this category, luckily it’s relatively affordable and easy to understand. Let’s start with the basics.
What is Life Insurance?
Life insurance pays out a lump sum of money to your loved ones should you pass away. Some policies also pay you if you are diagnosed as terminally ill with less than 12 months to live. This money can be used however you or your loved ones see fit.
Why should I have Life Insurance in NZ?
When you leave this world, so will your income and your ability to support a partner, children or family. Either way you look at it, you have value.
Often mortgage payments will become impossible to pay on a single income, nanny’s may need to be hired to take care of kids during work hours, more debt may be needed to fund education for children, etc.
If all of these financial burdens can be taken care of by a lump sum payment from an insurer, then it allows the remaining loved one/s to continue living without having to make drastic alterations to their lives.
Which Life Insurer is best in NZ?
All these companies offer Life Insurance, but not all are equal!
The policies from the above companies will be similar to one another, however the ease of claiming and the strength of the additional benefits will vary between companies. In 30 years of experience, it is our personal opinion that making a claim via a bank can be difficult as insurance is not their primary focus. Therefore, the process is inherently not as slick as an ‘actual’ insurer. So even if you do your personal banking with them, try to resist putting your personal insurance through them.
We have had very good claims experience for our clients with Partners Life and AIA in the past, so we often lean towards them, however, Fidelity and Cigna would also be safe bets. We recommend you use a broker (such as ourselves) and get their advice on which insurer is best for your situation. This costs you nothing and does not increase the cost of the insurance.
How much Life insurance should I have?
If you pass away, your income and ability to help around the house would all stop. Financially what would this do to your loved ones?
Try our new Life Insurance Calculator, it serves as a general guide for finding out how much Life Insurance you may need!
What does Life Insurance Cost in NZ?
The cost is calculated using several factors including your: age, sex and amount of life cover. Additional increases in price can be caused by being a smoker or being considerably overweight.
Most insurers are in the same ballpark in terms of price for Life Insurance, so the priority becomes about the quality of cover, how easy they are to deal with at claim, and how flexible your cover will be in the future.
Here are some generic examples of cost quoted across NZ insurers (pricing as of November 2022):
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$500,000 Life Insurance - $26-31/month
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$200,000 Life Insurance - $21-25/month
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$800,000 Life Insurance - $62-67/month
If you are a smoker this will roughly double the cost of your Life Insurance (due to the increased health risks).
Get quotes from us across all the best Life Insurers:
Why does my Life Insurance keep getting more expensive?
If you have selected a stepped policy (most common), then on your policy's yearly anniversary your premiums will increase with your age. If your insured amount has increased too (for example with inflation "indexation"), then this will also increase the cost slightly. The total annual increase is usually between 5-15%
The other option is Level premiums, these policies start out far more expensive but do not increase with age. There is a cross over point at which this becomes financially more economical but getting to that point involves dealing with higher costs when we are young, probably the time at which we actually need affordability.
In addition to this, as we age beyond a certain point, our need for insurance usually decreases as we become more financially stable. Therefore we can reduce our level of cover, which in turn lower premiums, negating the increasing price of a stepped policy. For this reason we recommend ‘stepped’ premiums for most cases.
Importantly, your insurer can't increase your premiums or introduce exclusions if you become ill after starting your insurance.
Who should own my Life Insurance Policy?
This is a critical step, and one your broker should help you think carefully about. The policy owner should be the person the money is trying to protect. If they are young children, then your partner or family member can be owner. If it is not setup like this, then it can severely delay the money getting to the right people after someone passes away.
Let’s go through some definitions:
Life Assured – this is the person that is covered, if they pass away then a payout occurs.
Policy Owner – this is the person/group/entity that the payout is sent to. The policy owner should be the people that the policy is meant to protect
There are 2 main types of ownership.
1. Individual Ownership – Policy is owned by a single person, either the life assured themselves or a parent/sibling. This type is used mainly for single people
2. Joint Tenants - Policy is jointly owned between 2 people (the surviving person receives the payout). This is great for couples and families.
Ownership can be modified even after the policy has been put in place. Including new people onto the policy or taking people off can all be easily achieved through your broker.
If this isn’t making sense, don’t worry, we would help set this up properly for you.
When should I purchase Life Insurance?
Many people see Life Insurance as a thing for older people to get, this couldn’t be more wrong.
It’s generally recommended to secure at least a little bit of cover ($30,000 - $50,000) when we are young. Many people leave it too late to get cover, a medical issue appears out of nowhere making it impossible for them to ever get cover in the future (this happened with my older brother).
However, if you already have a small amount secured this can be increased without medical underwriting (up to certain limits) for when you get older and take on more responsibilities, i.e. when you really really need it. If you have Life Insurance already, so long as you keep paying premiums, it can’t be taken away from you.
Also, no matter how young you are, there are significant costs associated with funerals, sometimes upwards of $30,000. This ideally should not be left to a distressed family to pay, instead get the insurer to pay for it by having a little bit of life insurance. Often this would cost well under $10/month depending on age/sex.
When to buy Life Insurance? (Obviously in the earlier years it should be organised by parents).
How does a Life Insurance application work?
An online or paper application that you will be guided through by your broker, which consists of basic details, information about your past health and any current health conditions/medication, and details on any dangerous hobbies you do.
Note: Failure to disclose any relevant past medical conditions/procedures you’ve had can result in future claims associated with these conditions/procedures being denied.
How to get good Life Insurance terms?
The information in your application is then sent to the insurer who underwrites it. From the insurer’s perspective, all they know about you is what they see on your application so often they will be cautious when offering cover to someone with an extensive medical history.
This is where it pays to have a good broker that can give a backstory behind past illnesses, their causes and perhaps why they no longer pose a threat now. At Elan we have managed to get some exclusions lifted for our clients this way.
Contact us if you’ve had trouble getting cover in the past and would like some help, we may be able to assist.
What are exclusions & loadings?
Exclusions are when a pre-existing medical condition specific to you or dangerous hobby you partake in, are not covered by the policy. Exclusions are generally more common for health insurance but can sometimes be found on life insurance policies too.
For example, if you disclose on your application that you regularly skydive, the underwriter would place an exclusion on your policy, stating that if you pass away from sky diving accident then you won’t be covered.
Exclusions are like little modifications to the policy that are added by underwriters if they deem it appropriate based on your application.
Loadings make life insurance more expensive by a certain amount (e.g. a +50 loading will increase the cost of the life insurance by 50%, so a $30/month premium would then be $45/month). Loadings can be used by underwriters when someone is deemed to be at higher risk of passing away due to a general health issue that can’t be excluded. A common one is being severely overweight.
Should I use an insurance broker?
Yes! Here’s why:
Our advice is free and doesn’t increase the cost of the insurance. “How does that work?” I hear you say. Well if you go directly through an insurance company, they forward you to one of their internal brokers/advisers, so either way a broker is being paid commission. So best to use a broker such as Elan that isn’t tied to a particular insurer.
We help at claim time and will advocate for you. Who would you rather call when seriously sick, an insurers 0800 number speaking to someone who doesn’t know you, or us, the people with the experience and the desire to get you paid.
We deal with the paperwork & hassle on your behalf.
Have access to our 30+ years of knowledge concerning all the options out there from the various NZ insurers and how that applies to your situation.
