What is life insurance?

The above diagram does a good job of explaining life insurance in a simple (and colourful) way. It all starts with applying for cover over the phone. You’ll need to answer some questions about yourself when you apply as insurers need to know about your medical history and lifestyle to help keep premiums lower. Thankfully, some providers (like us) won’t force you to have a blood test or medical during this process. It’s about time getting life insurance became simple!

You can expect to be asked about current or past illnesses and the treatments you’ve had. Questions around diabetes, smoking, and dangerous activities are common too, as well as your age, gender, and occupation. Make sure you answer everything truthfully – and the person on the other end of the phone will be happy to answer any questions you might have! It’s important that you understand that untruthful answers could impact on your ability to claim when the time comes.

A big decision you’ll need to make when it comes to life insurance is how much cover to take out. Most insurers have a minimum cover of $100,000 while the maximum is usually at least $1 - $2 million. You’ll also be asked to declare who you want the money to go to, known as your beneficiary. After that it’s time to relax – you can start living life freely knowing your family won’t be left in financial strain if something happens to you. Your beneficiaries can use the money any way they want, whether it’s for everyday living expenses, paying off the mortgage, or even some of life’s little joys.

Know what you’re covered for

Like every product you buy, there are some things that life insurance can’t do. Knowing what you’re covered for and what’s excluded is the best way to make sure you get the most out of your policy. The best place to start is by reading your Policy Document and Policy Schedule as every policy is different.

Remember that there are likely to be specific terms and conditions around your life insurance benefits. For example, death from accidents or natural causes is covered in a lot of policies but suicide is usually excluded for the first 13 months. For terminal illness benefits, you need to be diagnosed by a doctor with 12 months or less to live. Most providers also have stipulations for other causes of death like war, civil unrest, or dangerous activities.   

Life insurance regulations in New Zealand

Like most great countries, New Zealand has laws in place to make sure life insurance isn’t misused or issued unnecessarily.  It’s a good idea to read up on your rights and responsibilities so you know exactly what to expect.

If you’ve ever shopped around for insurance, you’ve probably seen the words ‘duty of disclosure‘ come up. This means you need to tell your provider anything that might affect your cover to ensure a smooth claim process.  

Is life insurance tax deductible?

When it comes to tax, life insurance premiums aren’t tax-deductible. But look on the bright side; the Inland Revenue Department won’t tax you on any life insurance payouts you or your family receive. Phew!

Why should I take out life insurance?

There are lots of reasons to get life insurance; if you have a partner and at least one child that’s already two great reasons right there! Life insurance is about looking out for the people who make your life worth the ride, whether it’s your spouse and children, community, or even your mates. We all have people who rely on us in some way so it’s good to know they won’t need to deal with the added financial stress when you’re gone. Even if you don’t have dependents right now, getting life insurance early on could make you eligible for a higher cover amount. Once you’re covered, you can keep this higher cover amount in place even if your life stage changes.  Just make sure you keep paying your premiums on time so your policy doesn’t lapse. And, if your situation changes you can re-evaluate and request to adjust your cover amount if needed.

While the biggest reason to get life insurance is to look out for your family when you’re gone, remember that it can also benefit you as the policyholder. Some providers offer a terminal illness benefit or optional cover for disabilities and other medical conditions. That means you can get a financial payout to help cover medical expenses or other bills, or at least get your priorities sorted out while you’re still around.  

Transferring life insurance or switching providers

Life changes over time so it’s understandable that your life insurance should too. If your situation changes drastically, if you have a joint policy you can transfer ownership of your policy to the other person insured.

Switching providers is also an option that might make sense for some people, like if your personal circumstances change and you want to take advantage of different benefits or cover amounts offered by another provider.

Wondering if life insurance is right for your life stage? Read about life insurance for life stages.

While switching providers is a great way to get the best possible deal, it comes with other potential roadblocks you need to consider – aside from just hurting your old provider's feelings. Cancelling an existing policy means you'll lose all your accumulated bonuses or rewards that come with it. That includes your multi-policy discount and bonus return on some of your first-year premiums. There are also risks to consider if you want to change your cover, including that your new policy may not have the same inclusions, and there may be additional exclusions. Also, you may find that your new insurer may limit the level of cover available or it may be more expensive due to the changes in your health since you originally got cover.

Before making the move, make sure you also consider whether you're eligible for cover with another provider. Every life insurance company has their own approval criteria and underwriting questions which could affect your ability to get cover, so be sure to check that your new provider is on board. There's nothing worse than ditching one provider and being denied by another.

Remember that every policy also has different inclusions and exclusions that affect the overall value you receive. Even though one aspect of a policy can seem appealing, you might be giving up cover for something else you're likely to need. You can avoid this by checking both policies thoroughly to make sure you're making the best decision for yourself and your family.