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 today’s market. So, if you’re in the market for a new policy, here are the main ways you can buy life insurance in New Zealand.
1. Directly (direct life insurance)
2. Through an adviser (advised life insurance)
What is life insurance?
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.
It helps prevent financial trauma from worsening the emotional trauma your loved ones suffer after you pass away. There are four different types of life insurance:
1. Term cover:
Provides coverage at a fixed rate of payments for a defined period of time (for example until their children are a certain age). Once that term ends, it is up to the policy owner whether to renew the policy or to let the coverage end.
2. Trauma cover:
Provides a lump sum payment if you suffer a critical illness or injury
3. Total and Permanent Disability Cover (TPD):
Provides a lump sum payment if you become disabled to the point that you can no longer work
4. Income Protection Insurance:
Provides a monthly payment for a period of time if you are unable to work
How to get life insurance: Direct life insurance
Direct life insurance involves buying life insurance directly from an insurer or one of their affiliates. 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.
Pros and cons of direct life insurance
The advantage of buying life insurance directly through an insurer is speed: as the products tend to be simpler in design, the underwriting timeframe is generally 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. We’ll go over the pros and cons in greater detail in the table below.
How to get life insurance: Advised life insurance
Advised life insurance is different to direct life insurance. Where direct life insurance involves going straight through an insurance provider, advised life insurance is obtained through the use of a specialised financial adviser.
If you buy life insurance through a financial adviser, it may work out to be more cost-effective than buying directly. And it also enables you to receive professional advice in relation to what insurance will best suit your needs. Some people prefer advised life insurance as it removes a lot of the confusion when it comes to choosing a policy; getting professional advice helps narrow your options in terms of policies that suit your needs.
There are currently 12 major life insurance providers in New Zealand, but advisers often work with a much smaller number than this, according to the Financial Markets Authority (FMA).
The FMA stresses that customers understand the options the adviser has considered before making their recommendation.
Pros and cons of advised life insurance
The table below displays the pros and cons usually associated with life insurance policies.
|Advisers can find a policy that better suits your needs||Fewer policies available|
|The cost is roughly the same vs direct life insurance||The adviser will most likely charge a fee for their services
|Advisers can also ensure that there are no holes in your application||It can take longer to apply and get your new policy|
Why life insurance is important
What would happen to your family if you died? What would happen to you if you suffered a long-term illness or injury? They are questions that none of us like to ask ourselves, but which we do need to face. Insurance can’t prevent something bad happening to you, but it can help to protect your quality of life in the event that it does.