Your Life Insurance Needs... and Why They're Important!

Newly married? Had a baby? Started a new career? Bought a new house? These are some of the reasons you should be reviewing your Life Insurance options. We know that reviewing your Life Insurance can be an annoying, confusing and undesired experience, but it could also be one of the most important time commitments you make! Having financial stability is essential for your family to continue paying the bills if you were to pass away. It's imperative when others rely on you for financial support, be it a spouse, child or even ageing family member, you should ensure your Life Insurance cover is in order.

The following 6 thoughts are written to help you understand what you should consider when you’re looking at your Life Insurance as you safeguard your family.

1. Why Do You Need Life Insurance?

The first question that needs answering when considering Life Insurance is "WHY Life Insurance"? Why do you need this insurance cover? Without knowing the ‘WHY’ how will you know what level of cover you should insure or what type of cover you need! Do you have debts or a mortgage that need to be repaid? Perhaps a partner or children who rely on your income? Do you want to provide replacement income for your whanau, allow them to take time off work to morn your passing or pay off the family mortgage? Perhaps you’re in a business partnership that needs buying out or have grand children you'd like to leave an inheritance to?

These are all reasons you should be considering when planning your level of Life Insurance cover.

2. What Type Of Insurance Cover Are You Looking For?

After establishing why you need Life Insurance, you next need to think about what type of Life Insurance will best suit your needs. There are a couple of different types of Life Insurance to consider. When you're looking at insurance you may hear the terms 'Life Income Cover', 'Life Cover' or 'Level Life Insurance' being used. These are the most common types of Life Insurance you’ll find in the New Zealand Insurance market.

Life Income Cover is designed to help replace lost income, providing income protection for ongoing lifestyle costs following the death of a loved one. The sum insured is paid as a monthly payment over a flexible payment term of 5, 10, 15, 20, 25 or 30 years or for a monthly payment up to the age of 65 or 70 years.
Life Cover provides a one-off lump-sum payment which can be used to help pay off final expenses, medical bills, debt, mortgage or even for your significant other or family to take time off work following your death. How you use this fund is entirely your decision. In some certain circumstances an advance 'terminal illness' payment can be made following a terminal prognosis.
Level Life Cover is the same product as standard life, however premium payments are 'locked in' upon application, avoiding premium increases as the life assured ages. Like normal life cover, a lump-sum payment is made following the death of the life assured to help with bills, debt, mortgage or other acquisitions. The leveled period could be renewed upon a 5 or 10 year period, or locked in till the life assured's 65^th, 70^th, 80^th or 100^th birthday. Some clients opt to lock cover in till their 100^th birthday with the view to passing the repayment of their premiums to their grandchildren as they age as a form of 'inheritance' based upon the increased chance of a claim becoming possible prior to the life assured's 100^th birthday.

3. How Much Insurance Should You Be Covered For?

Advisors would say this question would be one of the most frequently asked questions in the risk insurance market, for good reason.

It may be one of the most important questions you ask yourself when buying Life Insurance as it will determine whether your family will be adequately covered after your death or not. You don’t want to be paying for more cover than you can afford, but not having enough cover could be even worse. If your family were to require $700,000 to meet their financial needs but you were only insured for $350,000, your family could be left with considerable financial stress following your departure.

To know how much insurance you need, you should go back to the question of "Why you need Life Insurance" and consider it in conjunction with your current financial position. This way, you should have a rough estimate of the amount of cover you need to safeguard your family. As a very loose guide, many families might consider up to 10 years of the primary income earners annual income, but this depends upon your individual financial circumstances.

What you should be thinking when you’re trying to answer this question is:

Do you financially support a partner, children or ageing parents who rely on your income and will they be able to maintain a similar standard of living after you're gone?
Do you have a mortgage, debt or expense that will need to be paid off?
Do you have children you don’t want to have to worry about educational fees, or who you'd like to assist with their own financial foundation you need to consider?

There are many reasons to consider when deciding how much Life Insurance you require. By completing an “insurance review” customised to your financial position, your insurance adviser will help you determine what level of cover is best for your families financial situation.

4. How Much Insurance Can You Afford?

Many people would think that this would be a question with an easy answer however, shopping for insurance is not as simple as it seems. We suggest you know what you need before you know what it costs. That way you can make sure you’re putting your families financial interests ahead of the cost, ensuring the right protection is considered. You can then adjust cover a little to fit what you can afford.

Luckily for you, your adviser can supply pricing from a range of insurers to give you an idea of Life Insurance costs in conjunction with policy benefits, exclusions or points of difference. As previously stated, you have to consider more than just the initial costs as not all Life Insurance products are equal.

Various factors cause insurance providers products to be more expensive than others, for example; product benefits or exclusions (if a product is cheaper, it may have less benefits, or certain exclusions that could impact claims), additional child cover, smoking status or additional underwriting criteria such as age, weight and occupation class all affect the cost. Pre-existing conditions can also affect the cost and determine if any exclusions or loadings will be added to your cover.

The cost of your Life Insurance all comes down to the amount of risk that you bring with you when signing up for insurance. Importantly, be sure that you can afford the premium amount that you are going ahead with as it can end up hurting you in the long run if you get it wrong.

5. Do You Currently Have Life Insurance? If So, Should You Consider Replacing Or Changing Your Cover Levels?

It’s important to note that if you currently have Life Insurance in place, it is always best to go through your current cover with your insurance advisor. There are two types of cover you can have. Cover which you have taken out yourself and cover which has been taken out through a business or employer.

If you have personally taken out your existing cover you need to factor it in when going through your needs analysis with your advisor. This is so your advisor can get a good understanding of what you are or are not currently protected against, what you're paying and how any exsiting exclusions or loadings may be impacting your cover. Your adviser can then discuss with you the merits and detriments of shifting cover and how the new cover is in your best interest. This becomes especially important if you have experienced certain health issues since taking out your original cover, as these may not be covered under the new insurance.
If you have cover through a business or employer the process is a little different, as you may not be guaranteed to remain with your employer indefinately. Considerations should then include the possibility of covering your work "group scheme" to private cover, and if the existing sum assured is right for your situation.

The most important thing you need to know when replacing your current insurance is to avoid cancelling any cover until the replacement insurance has been accepted and is in force! If the current cover is cancelled before your replacement cover has been approved then you could be exposed to risk during the period without any insurance. It could be catestrophic if you were diagnosed with a sickness or injury while having no cover in place.

6. Do You Have Any Pre-Existing Conditions That Could Affect The Acceptance Of A Claim?

Pre-existing conditions are very common and often aren't applied to Life Insurance products however, they could determine the insurance provider you end up using.

Having a serious health issue such as heart disease, diabetes or cancer will leave you underwritten as a high-risk client which often makes for a long and difficult underwriting process, a key reason to work with an advisor. Importantly, some insurers who don't have the 'invasive', up-front underwriting process will often offset it with underwriting upon claim and premium cost increases, increasing costs or difficulties upon claim. For this reason, we would recommend avoiding buying cover directly from third party insurance resellers like banks or supermarkets, as they are unlikely to provide product comparisons with similar products offered by other insurers. Independent insurance reviews over the years have often found such products can be up to 75% more expensive than similar products elsewhere, or be impacted with harsher policy wording or exclusions not found with other insurers in the market.

Advisors are there to negotiate the best terms available during the underwriting process to ensure policy is fit for purpose, whether that be having exclusions removed or loadings reduced. It’s important you disclose your previous health and lifestyle history with your insurance adviser so that your advisor can set you a realistic expectation of your insurance application and work to get you the most favourable results!

Please understand that having pre-existing conditions can lead to a longer risk analysis from the insurer, who may end up waiting for medical records to be supplied so they can assess the applicant's individual risk prior to offering terms, so please be patient with your adviser during this time.

The Life Insurance Bottom Line

The best thing you can do when completing the process of setting up Life Insurance is to make sure you understand the products, or work with an adviser who does for you. Most advisers will provide you with the product brochures or fact-sheets of the recommended product you will be investing your hard-earned money towards, so make sure you take advantage of their knowledge and the information provided so you understand what you're covered for. If you have questions - speak with your adviser! They're there to help you every step of the way, understanding there is a lot to take in during this process, so they should be happy to do everything possible to remove the frustration and confusion from this important life decision.

Like the rest of us, it's normal to second guess ourselves, especially when money is involved. Having the protection Life Insurance offers is one of the most important transactions you will make, so trust that your decision will save and protect your families financial potential if you were to pass away prematurely.

Also remember, your adviser isn’t there just to save you money or help you with your application. While that's important, they are also there for you for the long run. If you have any questions that need answering, or you're looking to make a claim, your adviser is there to help with all your insurance needs!

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