Death is a touchy subject, and unsurprisingly, so is life insurance. Both make us confront with the reality that we may die unexpectedly and leave behind our loved ones.
The term “life insurance” covers two key concepts in New Zealand:
First, it is a specific type of insurance policy that pays out a sum of money when you die to your family or loved ones. In this case, life insurance protects your loved ones (i.e. spouse, partner, parents, kids, even organisations you care about) financially. Whether it is a car accident, a long suffering illness, or a sudden and unexpected disease (such as covid) that cuts short your time on earth, life insurance can provide financial certainty and help to those you leave behind.
Second, it refers to a group of insurance products that protects you financially in the event you are ill or injured and it prevents you from earning an income. Products mainly include Trauma (also known as Critical iIllness), Total and Permanent Disability (TPD), Mortgage Protection and Income Protection.
In this guide, we will focus on the first definition of life insurance; as a specific product that insures your life for a sum of money that is paid out to your loved ones when you die or are terminally ill.
Read more below as we touch on the need for life insurance and how much it costs.
Yes, we recommend you purchase life insurance for these two reasons.
Buy life insurance for you. You will often hear about life insurance leaving behind money for your loved ones and family but often it is forgotten that life insurance will pay out if you are diagnosed to be terminally ill. You can use the money to live out your bucket list if you are diagnosed to be terminally ill. For example, if you are diagnosed with late stage cancer and given 12 months to live by a doctor, life insurance will be paid out. You can then use the money to buy experiences and things you have wanted, or use it to fund experimental treatment to save your life.
Buy life insurance because of your loved ones. Life insurance is a way to leave your family and loved ones money that you don’t have. This payout when you die can be used to keep a roof over their heads, maintain their standard of living, or contribute towards their future. For example, if you are the main income earner in your family and your pay puts a roof over your family’s head and pay for their living, then life insurance could help to pay off the mortgage and sustain them while they transition to life without your financial support. It can also be used to fund your kids’ education or put it towards a down payment on their future property, leaving a legacy even when you are gone.
Chances are that you will not be able to save that much money in the period you are insured for. However, you should certainly be putting some money aside still if you can for when you stop life insurance in future.
For example, you are 35 years old and want to leave behind $500,000 if you die as this amount will be enough to pay off the mortgage and give your family enough time to transition after you die. However, you do not have this money and will not be able to save this in the next few years. This is where life insurance comes in. It helps provide that level of financial certainty for your loved ones if you died unexpectedly for a small amount each year. Read more about the cost of life insurance below.
This depends on how it is set up on your life insurance policy.
When purchasing life insurance, it is important to know that the policy owner will be the main beneficiary of the policy. This means that the policy owner(s) will receive the payout in the event that the life assured dies. The policy owner has to be at least 16 years old and any changes to the policy in future will require all policy owners to authorise the change.
For example, John is the person taking out a $500,000 life insurance policy on his life. He puts himself and his wife Jane as the policy owners. If John dies, Jane as the sole surviving policy owner will get the $500,000 paid out to her. If John simply puts himself as the policy owner, the $500,000 will be paid out to John’s estate. This will often take a bit of time in New Zealand to be processed.
It is very helpful if John has a will in place as it will make it quicker to process his estate and have the money paid out to the people he wanted to in the event of his death. However, it is commonly understood that putting the person you want the money to go to as the policy owner is the best way to get the money quickly paid out from an insurer.
In New Zealand, life insurance payouts are not taxed as long as the payment is made to a person i.e. not a trust or company. This means that the amount you insure your life for will be the amount the policy owner or your estate receives when you pass away.
The cost of life insurance depends on a number of factors such as:
Age of the insured person
On average, for a $300,000 life insurance cover you can expect to pay just under $50 a month ($600 a year). For an $800,000 life insurance policy, it will cost roughly $100 a month ($1,200 a year).
Typically, the cost of life insurance increases as we age. Let's take a look at how much it will cost for $300,000 worth of cover over difference age groups:
In your mid-20s and mid-30s, it will cost roughly $300 a year
In your mid 40s, it will cost roughly $500 a year
In your mid-50s, it will cost roughly $1,300 a year
If you prefer certainty in your premiums, there is an alternative where you can have the price of your life insurance fixed. You can opt for what is called “level premium” or fixed premium cover where the premiums do not increase with age. There are some exceptions so be sure to check with the insurer or the insurance adviser.
For level premium, the difference is that you will average out the amount and start paying a higher level of premium from the start (roughly twice as much) but the amount does not increase over time. This could work out better for someone with the ability to pay more now and can save later on higher premiums.
Check out how much life insurance will cost for you on Quashed. It's free and easy to sign up.
Generally speaking, a common life insurance cover amount is $500,000 in New Zealand. This however does not mean it is the amount that is right for you.
Read on to learn more about how you can consider how much to insure your life for.
There are several ways to think about this. One way is to consider who would you like to leave money behind for and how much money would you like to leave behind to them?
Another would be to sum up all your debts (mortgage, credit card, vehicle loans, etc.) and consider how much money you are currently spending to sustain your family’s lifestyle - multiply this by the number of months/years you would like to support them for.
There are simple but less methodical ways of calculating this - an example is multiplying your annual income by 10. For example, if you are on $80,000 a year salary, you could consider $800,000 of life insurance. This could be a quick and easy starting point and you can then work your way back to seeing if this is sufficient to account for your debts and the cost to support your family’s living expenses for a period of time.
Don’t forget, you can also use life insurance to give your loved ones gifts such as an education for your kids, or a downpayment towards their first home, etc.
You can also use a free online life insurance calculator to estimate how much life insurance to get covered for - here’s one from Quashed. Alternatively, you can use a life insurance adviser that can help you work this out. Often they will have their own suggestions and calculations based on their experience. Connect with a life insurance adviser for free on Quashed.
The best way to find the cheapest life insurance policy is to shop around.
Our research found price differences can vary between 30% and 50% for the same amount of life insurance cover.
For example, a 35 year old female looking for $300,000 of life insurance - the most expensive cover cost $301 a year while the cheapest was $187 a year. Comparing in this case would save her $114 or almost 40%.
For a 45 year old male looking to get $300,000 life insurance, the most expensive quote in our search came back at $573 a year while the cheapest was $422 a year. A saving of $151 or almost 30% in yearly costs.
There are a couple of ways to find the cheapest life insurance for you:
Chat to an insurance adviser. As most life insurance is sold through advisers in New Zealand, your best bet would be to get in touch with one that you are comfortable with. You can use Quashed to connect with a life insurance expert for free. Most do not charge a fee for their service as they are paid by the insurer if they are successful in helping you purchase a policy.
Check with a life insurance provider. Alternatively some insurers do have direct online life insurance where you can get a quote and purchase. For example, Pinnacle Life or Cigna offer consumers the ability to purchase life insurance online. You can check them out by visiting their website.
When it comes to life insurance policies, most insurers offer the same benefits. Read the policy or chat with an adviser to find out more.
Most life insurance have a suicide exclusion for the first 13 months i.e. they will not payout in the event that the insured person dies from suicide within the first 13 months of purchasing the policy.
Another common feature is that if the insured person is diagnosed with a terminal illness and given 12 months or less to live, the policy will payout. If it is not terminal within 12 months, but it is one of the conditions that will reduce your life expectancy, a portion (e.g. 30% of the life insured amount) will be paid out.
To learn more about specific details, either read the policy documents or have a chat with an insurance adviser. Connect with an adviser for free on Quashed.
Life insurance policies mostly have similar benefits. Many life insurance companies still sell their policies through life insurance advisers rather than online.
If you are looking for a life insurance adviser, you can sign up for free to Quashed and connect with an expert life insurance adviser for free. A 30 minutes chat with will help you better understand life insurance and they will have the information they need to make comparisons and recommend the right cover for you. There is no pressure or obligation to purchase and usually no costs involved for the chat.
Alternatively, life insurance companies such as AA Life (underwritten by Asteron Life), Pinnacle Life and Cigna allow consumers to get a quote online. If you are looking for the cheapest priced life insurance policy, read “Cheapest life insurance” above to learn more about the price differences and how much you can expect to pay/save.
These products are now rare in NZ and most insurers have completely ceased selling them.
In the past, this was common but as regulations tightened, these policies that are more complex and difficult to understand have fallen out of favour. Term life insurance is now the standard and norm in New Zealand where it is simply an insurance product with no links to any investments.
Based on the latest (June 2021) life insurance statistics published by the Financial Services Council in NZ, total annual premiums were roughly $1.4B. Assuming each policy on average cost $1,000 a year, 1.4M people are insured for life insurance.
In the same report, the quarterly Life insurance claims paid (including Trauma, Total Permanent Disability, Mortgage Repayment and Income Protection) were roughly $350M suggesting over $1B is paid out each year in New Zealand.
Life insurance in New Zealand is mostly sold through insurance advisers. However, more life insurance companies are starting to offer customers the option to purchase online.
Advisers can provide you with advice; helping you to work out how much life insurance you need, compare and find the most suitable life insurance within your budget.
Engaging a life insurance adviser is usually free, some do charge a fee so do ask. Advisers are required to disclose this information to you in your first meeting. One of the benefits of engaging an adviser is that they are also able to help with other additional life insurance covers such as Trauma, Income Protection, Mortgage Repayment, etc.
You can connect with an expert life insurance adviser for free on Quashed.
Some life insurance companies offer consumers the ability to purchase online. Pinnacle Life and Cigna are some examples. The general difference with purchasing life insurance online versus through an adviser is that the products are usually simpler and with fewer benefits.
Most banks offer their customers life insurance too. However, increasingly banks are getting out of the life insurance business and have sold this part of their business and now refer customers through to life insurance companies they have partnered with.
For example, ANZ sold and partnered with Cigna. In 2021, BNZ announced it was selling and partnering up with Partners Life and Westpac is doing the same with Fidelity Life. Kiwibank has also announced the same with nib.
Don’t delay, get it sorted like it might be your last day
Pick the right policy owner for your life insurance
Get a will in place to direct how your money and estate is divided
Compare policies - use an insurance adviser if you need help