How to Choose Your Life Insurance Cover

Investing in life insurance and other personal insurance policies is an excellent way to insure you and your family against the unpleasant things that occasionally happen.

What is Life Insurance?

Life Cover can take various forms, but can generally be described as a payment that is made on the death of the life assured. It can either be paid out as a lump sum or as a pre-determined monthly amount over a set term. Life insurance is designed to ensure that your dependants are able to support themselves.

The most popular type of life insurance cover available in New Zealand is term insurance. Term life insurance is renewable contract between you (as the insured party) and the insurer. The policy and premiums are usually reviewed annually.

You can get a quote for life insurance based on your age, sex, and whether you smoke or not, but before cover commences most insurers get you to fill out a comprehensive health and lifestyle questionnaire. They may also ask you to have further medical tests. You must answer these questions fully and honestly, or your cover could be compromised. We really can’t stress this enough – we can’t think of anything worse than being in a situation where you need to claim on your insurance, only to find the insurer turns down you claim because you haven’t fully disclosed your medical history.

The following personal insurance products are often recommended as add-ons to life insurance, but are also available as stand-alone products from many insurers:

Income Protection Insurance

An income protection policy will pay you an income in the event that you are unable to work due to accident or illness. There is usually a waiting period (upwards of 4 weeks) before the payments commence, and pre-existing conditions are often excluded by the insurer.

Your cover will be cheaper if a longer waiting period is selected, so it may pay to establish with your employer how much sick leave you would have access to, and whether you would be able to use up annual leave owing; and also to have a think about how long you could live off your savings.

Some income protection policies offer additional features, such as continuing to pay a benefit even if you have to return to the UK, or offering a lump sum if your illness or accident is so severe that you become completely disabled.

We think that, along with life insurance, income protection cover is one of the most important insurance policies you can own. Income protection insurance is surprisingly affordable, certainly much more so than the equivalent cover in the UK. This is partially due to New Zealand’s unique ACC (Accident Compensation) scheme, which will cover up to 80% of your income in the event of a workplace, home or leisure accident. ACC will not however cover your loss of income if you are ill.

Some New Zealand insurers will not pay out on income cover if ACC or other insurers do, so it is important to understand what your insurance covers you for.

Critical Illness or Trauma Insurance

Trauma cover pays out a lump sum if you are critically ill. Insurance companies generally have a list of conditions that they cover e.g. cancer, heart attack, stroke, but the best policies now include cover for non-specific conditions which require you to be hospitalised in Intensive Care for 5 days or more, or on Life Support for 3 days or more (and survive for 14 day after being discharged).

Trauma insurance is designed to ensure that your family does not suffer financially while attempting to cope with a devastating illness.

Total and Permanent Disability Insurance

This pays out a lump sum if you become unable to work due to an accident or illness. You will generally not be covered if you deliberately injure yourself, disable yourself committing a crime, or injure yourself through recreational drug taking.
Total and permanent disability cover is often the cheapest form of personal insurance, as it only pays out if you suffer an accident or illness that results in you being totally disabled and unable to return to work for the rest of your life.

Accelerated Cover

Some insurers offer packages which include disability, income and critical illness cover along with life insurance. This can be an economical way of having a high level of cover, but any payout from one form of insurance will typically reduce the payout of another under the same policy – if, for example, you claim under your critical illness cover, your life cover will be reduced by the amount that you have been paid out already.

How much personal insurance cover will I need?

In an ideal world, everyone would get income insurance when they started providing for themselves and life insurance when someone started depending on them. The exact amount of personal insurance you require will vary throughout your life as your circumstances change – it is worth undertaking to review your insurance annually to make sure that your cover reflects your any changes to your circumstances.

This article was supplied by Broadbase International Ltd (www.broadbaseinternational.com). Information contained in this article is of a general nature and is not intended as a substitute for professional advice based on your individual circumstances. Disclosure statements are available on request and free of charge.