Life Insurance - February 13th
What is the average life expectancy in New Zealand? According to the most recently available data from the World Bank, New Zealand life expectancy at birth in the year 2015 was 81.46 years. Male babies born in 2015 were expected to…– Read more
Life Insurance - February 1st
Co-Author: Michelle Norton Reviewing your life insurance never makes the top of anyone’s to do pile – it simply isn’t all that fun. However, life insurance has never been easier to buy than it is in…– Read more
Life Insurance - February 1st
Co-Author: Michelle Norton When should I buy life insurance? Before you need it! Life insurance can’t do you much good if you only get a policy after something has already happened to financially affect your family.…– Read more
Life insurance provides a lump sum payment to your beneficiaries upon your death, or upon your diagnosis with a terminal illness that will end in death within 12 months. Life insurance helps prevent financial trauma from compounding the emotional trauma your family would inevitably suffer.
Other related life insurance products include:
Trauma Cover – to provide a lump sum payment if you suffer a critical illness or injury.
Total and Permanent Disability Cover (TPD) – to provide a lump sum payment if you become totally and permanently disabled so that you are no longer able to work.
Income Protection Insurance – to provide a monthly payment if you are unable to work due to serious illness or injury.
If the answer to any of the above indicates the need for extra money to be available, you need to look at personal life insurance!
Just as with many other products nowadays, there is more than one way to buy life insurance. In fact there are two main ways in New Zealand
Buying direct is essentially a way of DIYing your life insurance. It is up to you to determine what type of policy, policy conditions, and sum insured will fit your needs.
This type of insurance can be obtained either online, over the phone or directly from a provider’s branch, and is possibly the simplest way to buy life insurance.
Direct life insurance products appeal to people who know what they want and like the idea of having a straightforward life insurance policy in place to protect their family and assets, should the worst happen.
The advantage of buying life insurance directly through an insurer is speed: as the products tend to be simpler in design, you can generally get a response quicker.
The main disadvantage is that, as you are not receiving professional advice, you may not be sure what type of life insurance would best suit your needs.
Depending on your personal situation, buying life insurance through a financial adviser may work out to be more cost-effective than buying directly and may provide a higher level of cover.
This approach enables you to receive professional advice about what insurance will best suit your needs. Receiving advice doesn’t have to be time consuming – you can apply over the phone if you want to.
The main potential disadvantage is the time taken to underwrite the policy: because the policies provided via advice tend to be more comprehensive products, they can take longer to be assessed and approved by the underwriting department. It can be a small price to pay, though, for the guidance you receive.
Please note that these are a general explanation of the meaning of terms used in relation to life insurance.
Policy wording may use different terms and you should read the terms and conditions of the relevant policy to understand the inclusions and exclusions of that policy. You cannot rely on these terms to the part of any life insurance policy you may purchase.
Refer to the product disclosure statement (PDS).
Duty of disclosure: When you complete an insurance application, you are required to disclose everything you know about your health, occupation, sport activities or other lifestyle risks, and income. If you fail to comply, you may come unstuck at claim time when the insurer writes to your doctor or Medicare to obtain your health history.
Exclusion: The insurance company may exclude a hazardous sport or activity, which means you will not be covered if you become injured, sick, or die while doing that activity. Learn more about common exclusions.
Guaranteed future insurability: The option to increase your sum insured without having to provide health evidence or go through the underwriting process. Usually this option is available when you have certain life events defined in your policy, such as marriage, birth of a child, or increasing your mortgage.
Income protection insurance: Cover designed to replace 75% of your income when you cannot work due to a sickness or accident. Some policies also cover you if you can only work in a reduced capacity while you are recouping, such as part-time. Compare income protection.
Level premium: The premium is calculated and based on your age at the start of the policy. The premium may still increase along with inflation or for a certain occupation category, but not based on your age. Learn about the difference between stepped and level premiums.
Occupation category: Grouping together occupations with similar duties and risk levels.
Premium loading: An insurance company may charge higher premiums if you fall into a certain risk factor category, such as being overweight, smoking, or having high blood pressure.
Stepped premium: The premium is recalculated (and will usually increase) on each policy anniversary, based on your age at that time. Learn about the difference between stepped and level premiums.
Term life insurance (death cover): Term life insurance covers you if you die or are diagnosed with a terminal illness with less than 12 months to live. Be aware that some death cover within superannuation may not have a terminal illness benefit.
TPD any occupation: You are covered if you become disabled so that you are unable to work in any occupation. For example, a surgeon could become a GP and continue to work and earn an income, meaning they would not be eligible to claim on their TPD cover. Compare TPD insurance.
TPD own occupation: You are insured if you become disabled so that you are unable to work in your own current occupation. For example, if a surgeon could no longer do surgery, they would be eligible to claim on their TPD cover, and the insurance company could not make him become a GP instead. Compare TPD insurance.
Trauma cover (critical illness insurance): Cover for a lump sum payment if a defined health event happens to you, such as cancer, heart attack, or stroke. The majority of policies have an extensive list of conditions covered, so it’s worthwhile comparing your options, as they do slightly differ from policy to policy. Compare trauma insurance.
Waiting period: The number of days you must be off work before your income protection claim starts. Learn more about features of income protection insurance.
Underwriting: The process where the insurance company’s underwriter (the insurer’s insurance provider) assesses your application for insurance cover. They look at your health, occupation, sport activities or other lifestyle factors, and income. The underwriter may accept you as a standard cover (first class rate), offer you special terms for cover, or may reject you outright.