Life insurance
A sum of money for the people who depend on you. Sized against real obligations, and structured so that it reaches them without a wait.
What life cover pays, and when
Life insurance pays a lump sum when you die. Most New Zealand policies will also advance that sum if you are diagnosed with a terminal illness and given a short prognosis, which is often the more useful of the two.
That is the whole mechanism. Everything that matters after it is design: how much, who owns the policy, how the premium is structured, and what happens to the money on the day it is paid.
We have seen properly sized policies do very little good because the last of those was never considered.
Ownership decides where the money lands
A policy owned by the life insured pays into that person's estate. If there is a will, the money queues behind probate with everything else, and probate is not quick when an estate is complicated or contested. A policy owned by a spouse, a trust or a company pays to that owner directly, and it pays in days.
Which structure is right depends on whether there is a trust, whether there are children from an earlier relationship, whether a business is involved, and how relationship property sits. It is a conversation, not a tick box.
What the sum insured is usually asked to do
Clear the mortgage
Retire the debt on the family home so that a surviving partner is not making a decision about where to live in the worst month of their life.
Replace income
Fund the household for a defined period, most often until the youngest child is independent, rather than in perpetuity.
Educate the children
School and tertiary costs, and the years of reduced earning that tend to follow a death in a household with young children.
Keep a business trading
Buy out a co-owner's shareholding, or carry trading costs while a successor is found, so the estate is not forced into a quick sale.
Settle what is owed
Personal guarantees, tax on the final return, funeral and administration costs. Modest individually, awkward together.
Leave something behind
Where the obligations are already met, cover can simply be a bequest: to grandchildren, to a charity, or to make an uneven estate even.
Level or stepped premiums
Most New Zealand life policies default to a stepped premium. The rate rises with your age every year, so it is cheap at forty and expensive at sixty-five, which is precisely when people cancel and lose the value of everything they have paid.
A level premium fixes the rate to a chosen age, usually sixty-five or seventy. You pay more at the outset and considerably less later, and over a long holding period the total cost is normally lower.
Which suits you turns on how long you expect to hold the cover. For a twenty-year need, level is usually the better arithmetic. For a five-year need it rarely is. This is one of the few insurance decisions where the maths is unambiguous once the term is known, and it is also among the most commonly got wrong.
What shapes the premium
Your age, the sum insured, whether you smoke, your medical and family history, your occupation, and whether you choose level or stepped rates. We publish no indicative figures here because a range wide enough to be honest would be too wide to be useful, and a narrow one would be a sales device.
What can be said plainly: cover for a healthy non-smoker is inexpensive relative to what it does, and cover applied for after a diagnosis is loaded, excluded or unavailable. That is the practical argument for arranging it while the question is still theoretical.
Where life cover goes wrong
Three failures account for most of it.
Non-disclosure at application. An insurer can decline a claim over something you did not mention, even where it had nothing to do with the cause of death. We would rather over-disclose and have any exclusion written in plain sight than leave a question open for someone to find later.
Cover that was never reviewed. A sum insured set against a mortgage taken out in 2012 is not the right number today, and nobody writes to tell you.
Ownership set on autopilot. The default is the life insured, and the default is frequently wrong.
Our advice process is built around finding these before they matter rather than after.
At claim time
The person who arranged this cover is not the person who claims on it. The claim is made by a spouse, an executor or an adult child, usually in the fortnight after a funeral, and usually by someone who has never spoken to an insurer in their life.
We make the claim. The insurer's forms, the death certificate, the medical evidence, the questions about an application completed years earlier: those are ours. Your family's part is to tell us, and then to be left alone.
Where the policy is owned outside the estate, the money can usually be with its owner in days rather than waiting behind probate. That is the practical return on a decision made when the cover was arranged, and it is why we spend time on it then.
This is the hardest part of an advisory relationship to judge before you need it. It is worth asking any adviser you speak to, including us, exactly who fills in the form.
Common questions
How much life insurance do I need?
No rule of thumb survives contact with a real household. We work it out by adding what you would want cleared, what income would need replacing and for how long, and what it costs to educate any children, then subtracting what already exists: other policies, employer cover, KiwiSaver, and the assets your family would keep. The number that comes out is usually different from what people assume, in both directions.
Is life insurance paid to my estate or directly to my family?
It depends entirely on who owns the policy. A policy you own yourself pays into your estate and waits for probate. A policy owned by your partner, a trust or a company pays to that owner directly, usually within days of the claim being accepted. This is one of the cheapest decisions to get right and one of the most expensive to get wrong.
Is the cover I have through work enough?
Group cover through an employer is useful and it is rarely sufficient. It is typically a small multiple of salary, it is not portable, and it ends when the job does, which is often the same season your circumstances get harder. Treat it as a floor to build on.
Do I have to take a medical?
Sometimes. A good many applications are settled on the questionnaire alone. Where an insurer wants more, it is usually blood tests and a nurse visit at the insurer's cost and at a time that suits you. Underwriting is not something you should have to manage. It is ours to carry.
Can I get life cover if I have a medical condition?
Often, yes, with a loading or a specific exclusion. Insurers differ considerably in how they assess the same condition, and knowing which one to approach first is a large part of what an adviser is for. A decline is recorded and follows you, so the order in which applications are made matters.
Cover that often sits alongside this
- Trauma and critical illness cover pays on diagnosis rather than on death, and is the cover that changes the year a serious illness arrives.
- Total and permanent disablement cover a lump sum where you are unlikely to work again, which is a different problem from dying.
- Income protection replaces earnings month by month rather than in a single payment.
- Mortgage protection targets the single largest obligation most households carry.
Talk to us about life cover
An initial consultation runs about an hour, in our Garden Place rooms in Hamilton. You sign one thing: confirmation that you have received our disclosure statement and understood it. Nothing else.
This page is general information about how this type of cover works. It is not financial advice for your circumstances. Advice is given after we understand your position. See our disclosure statement.