Life insurance can seem daunting, especially with so many options and considerations. Kiwis often have similar questions when looking into life cover, so let’s address the top 10 questions asked about life insurance in New Zealand. By understanding the basics, you can make more informed decisions about protecting your family’s financial future.
1. Why Do I Need Life Insurance?
Life insurance provides financial support for your loved ones if you pass away unexpectedly. It helps cover things like mortgage payments, daily living expenses, and debts. For many Kiwis, having life insurance means peace of mind knowing their family won’t be financially burdened in the event of a tragedy. If you have dependents or significant financial obligations, life insurance is worth considering.
2. How Much Life Insurance Do I Need?
The amount of life insurance you need depends on your personal situation, including your income, debts, and dependents. Some people may only need a smaller amount if their financial obligations are limited. It's a good idea to assess your needs carefully or speak with a financial adviser to get personalised advice.
3. What Does Life Insurance Cover?
Life insurance is designed to pay out a lump sum if you pass away or are diagnosed with a terminal illness. The payout can be used for various purposes, such as covering funeral costs, paying off the mortgage, or supporting your children’s education. Some policies may also offer optional add-ons for additional cover, such as trauma or total and permanent disability insurance.
4. How Are Life Insurance Premiums Calculated?
Premiums are typically based on factors like your age, gender, health, lifestyle, and the amount of cover you choose. Smokers, for example, will usually pay higher premiums due to the increased health risks. Additionally, as you age, premiums tend to rise, reflecting the higher risk. It's helpful to compare policies with the help of an adviser and consider what works best for your budget.
5. Does Life Insurance Cover Pre-existing Conditions?
This depends on the policy. Some insurers may offer cover for certain pre-existing conditions, but others may exclude them or require a higher premium. It’s important to disclose your full medical history when applying for life insurance. Failing to do so could result in a claim being denied. If you have pre-existing conditions, it’s wise to discuss your options with an adviser who can help find the most suitable cover.
6. Can I Adjust My Life Insurance Policy Later?
Yes, life insurance policies can often be adjusted as your needs change. You may want to increase your cover if you take on a larger mortgage or have children, or decrease it if your financial obligations lessen over time. It’s recommended to review your policy regularly and ensure it still fits your current circumstances. Many insurers allow you to make changes without requiring a full reassessment of your health.
7. What Happens If I Stop Paying My Premiums?
If you stop paying your premiums, your life insurance policy will typically lapse, and you’ll lose your cover. Some insurers offer a grace period during which you can catch up on missed payments. If you’re struggling to afford your premiums, it’s best to contact your insurer or adviser to explore possible solutions, such as adjusting your cover or switching to a more affordable policy.
8. How Does Life Insurance Differ from Other Types of Insurance?
Life insurance specifically provides a lump sum payout upon death or terminal illness. In contrast, other types of insurance, such as health or income protection, cover different risks. Health insurance helps with medical expenses, while income protection replaces a portion of your income if you can’t work due to illness or injury. Each type of insurance serves a distinct purpose, and having a combination can offer more comprehensive protection.
9. Can I Have Multiple Life Insurance Policies?
Yes, you can have multiple life insurance policies. Some people choose to have separate policies to cover different needs, such as one for personal obligations and another through their employer. However, be aware of potential policy overlaps and make sure your total coverage is appropriate for your situation. Multiple policies can be more expensive, so it’s often better to have a single, well-structured policy.
10. Is Life Insurance Tax-deductible in New Zealand?
Life insurance premiums in New Zealand are generally not tax-deductible. However, the payout from a life insurance policy is usually tax-free, which can help your beneficiaries receive the full benefit of the cover. Tax regulations can be complex, so it may be worth seeking advice from a tax specialist if you have specific questions about how life insurance may impact your tax situation.
Why It’s Important to Regularly Review Your Life Insurance
Life changes, and your insurance should change with it. Whether you’re starting a family, buying a home, or nearing retirement, regularly reviewing your life insurance policy ensures it remains suitable. An outdated policy may leave gaps in your coverage, potentially putting your loved ones at risk. Take time to assess your needs and explore your insurance options if necessary.
To start exploring your life insurance options, visit our Get Started page. For more information on other personal insurance types, head over to our Personal Insurance page.
The information in this article is general information only and is not intended as financial, medical, health, nutritional, tax or other advice. It does not take into account any individual’s personal situation or needs. You should consider obtaining professional advice from a financial adviser and/or tax specialist, or medical or health practitioner, in relation to your own circumstances and before acting on this information.
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