All About Private Health Insurance
What is it?
Life Insurance would be the most straightforward products under the umbrella of “Personal Risk” insurance products. This simply pays a lump sum if you were to die prematurely or were diagnosed as terminally ill.
Why do I need it?
To offset the risks of you passing away prematurely. Who would pay your debt (mortgage)? Is someone reliant on your income? As we said in the intro there is a 17% chance you will pass before retirement age.
1 in 8 men, and 1 in 12 women over the age of 30 will die before the age of 65.
When should I get it?
Not the easiest question to answer because as you will see with a lot of these products, When you need them, and when you should get them can be two separate things. The the more simplistic answer is when you have something to protect, and when they are affordable to you.
You should also consider that while you are younger you are more likely healthier, and more likely to be approved for cover or be able to lock in a lower premium for the long term. Insurers reserve can exclude pre-existing conditions, place a loading on premiums to cover the increased risk (meaning they increase the cost by a percentage) and even defer or deny your cover. That goes for all the products in this guide.
When you have something to protect like a family, or you have taken on significant debt (like a mortgage) you have a need for Life Insurance so that in the event of your untimely passing your loved ones are not financially burdened with your lost income, remaining debt, or both.
How should I do this?
How much is the most common question here, you should consider all scenarios if you were to pass prematurely? You want enough cover to pay off any debt, funeral and legal costs, replacement income if others rely on that income, child care costs and education funds are a good idea to consider. There is no one size fits all but think about what your plan would be, what is your desired outcome? and that should help frame your cover requirements.
Quick Tip: Your student loans are forgiven if you pass away so leave these out of the equation
How to pay for it… premium options!
You would have heard some insurers ads on TV boasting about their life insurance with “premiums that don’t increase age”. The reality is that this is not a unique, most major insurers offer Level Premiums which stay at the same price for a specific period of time e.g. 10 years, to age 65 or 80. Where standard life insurance products will progressively increase annually that is often called Rate for Age or Stepped. Rate for Age will always be the cheapest option when you first start looking at Life Cover, but Level Premium will offer significant savings if you keep these in place for the entire level period (10 years, to age 65 or 80). Neither of these options are better than the other, they simply serve a different purpose and most people would want a mixture of the two options.
Level Premiums - You should use this for the amount that you will need to keep in place long term i.e. when will your mortgage be paid off?
Rate for Age - This should be used to cover debts and expenses in the short-medium term keeping in mind that over time your mortgage will decrease, your kids will get older and not require as much financial support, and other assets like your KiwiSaver and savings may increase.
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FAQs
What is the average life insurance cost per month?
What are the different life insurance policies?
Why do life insurance premiums increase?