Life Insurance

Best Buys and Top Deals for Life Insurance that Protects Your Family and Loved Ones

Updated January 2018
TLDR Review Summary of Life Insurance
  • Life Insurance is very competitive in New Zealand and the existence of price comparison websites makes it more affordable than ever before.
  • Getting the right cover level is best estimated at 10X your pre-tax salary.
  • When it comes to buying life insurance, shop around. We found price comparison sites quoted the same policies offered by insurers for twice the price!
  • A 30 year old male/female non-smoker should be able to get a $500,000 policy for under $400/year by getting quotes. As you would expect, policies get more expensive the older you are. 
  • Insurance brokers offer expertise and know the market more than anyone - if you have a specific concern or question about anything related to life insurance, they will likely be your best resource and asset for picking the best policy. 

Life Insurance – Why It's Important

It’s a sad reality that one child in every 32 will lose a parent or guardian while under 18 in New Zealand. Grief and despair is often followed by the loss of an income and financial hardship for the family. Life insurance is an affordable way to help your family and avoid financial suffering if the worst happens. 

What’s important is making sure you get the right policy and don’t overpay. New Zealand has many sad examples of families like yours overpaying $10,000+ over the life of policies which often don’t offer the best benefits. We’ve put this guide together to explain life insurance, assess whether it’s right for you and help you get the cheapest and best policies.  

Life Insurance – the basics

  • New Zealand insurers offer a number of different types of “life insurance”. 
  • Some life insurance will only cover a mortgage, while other life insurance looks after all of your dependants. 
  • Our focus is on life insurance policies that cover your family if you (or your partner) were to die. 
  • Death is certain, but life insurance covers the possibility that you “may” die within a certain period of time. 
  • We believe that the reliance of a family on one parent’s income is now so great any person with one or more dependants needs to consider taking out life insurance. 
  • In our review, we show premiums starting from $600 a year for two adults, offering a $500,000 pay out. To make i easier on the pocket, most insurers allow you to pay it fortnightly to spread the cost. 

Here’s what you need to know about Life Insurance:

Life insurance pays out a set dollar amount to your family if you die while the policy is valid

  • The payout you family will receive is called the “Cover amount”. The higher the cover amount, the higher the cost of life insurance.
  • The payout does not vary – what you sign up to on day 1 is what your family receives if you or your partner die.
  • The payout is paid on death (or upon diagnosis of a terminal illness).
  • Once you know what cover you need (i.e. $500,000 or $1m), the cheaper the annual fee for the policy is likely to be the most suited policy for you and your family.

Don’t have dependants? You probably don't need life insurance

  • If you’re single and have no dependants, then life insurance probably isn’t worth your time and money. As life insurance makes a payout upon your death, unless you want someone specifically to get such a sum if you die, we recommend you don’t bother.
  • If you do have dependants who rely on your income (i.e. a partner/children/sibling), then consider what would happen to them in you died. If there would be financial hardship, it’s wise to get a life insurance policy which will pay off a mortgage and leave money for bills and raising kids.
  • If there would be no financial consequences from your death, life insurance is probably unnecessary. 

What should my cover amount be? How long should I have the policy for?

  • Our advice is clear – cover your family for 10 times the annual pre-tax income of the highest earner until the children have finished school. For example, if you earn $60,000 per year, insure for $600,000. 
  • We recommend having a life insurance policy until your dependants are no longer reliant on you. If you plan to have more children, factor that in so you don’t insure for too little should you or your partner die. 
  • If you want to help cover their university or further education expenses, consider keeping your life insurance policy until your children graduate.  
  • If you cannot afford our “10 times” advice, do a calculation of how much money you would need, and make that the cover amount. 

In estimating your cover amount, add up:

  1.  All of your unpaid debts – i.e. credit card, mortgage, personal loans and car finance etc.  
  2. Immediate expenses your dependants would need to pay, such as their living costs for several weeks – estimate $5,000 per dependant to be on the safe side.    
  3. $10,000 for funeral costs (although most policies include funeral expenses in addition to the cover amount. 
  4. Future spending you have planned, such as university costs for your children. 

Ask yourself - Should I get a joint policy with my partner, or two single policies?

You can do either, but what is best for you may not be cheaper in the short term. If you both get single policies, each policy will pay out upon death as you would expect. If you select a joint policy, this may be cheaper than two single policies but the catch is that joint policies only pay out on the first death. The surviving person is then uninsured.

Key facts about Joint policies:

  • It’s almost always cheaper than two single policies
  • It’s easier and quicker to set up than two single policies
  • But, it only pays out once (where as a two single policies pay out twice)
  • And, if you split from your partner you’d need to buy a new single policy

The lower the risk of your death, the cheaper your life insurance

​Life insurance premiums increase with the likelihood of your death. A 30 year old office worker will have a cheaper premium than a 90 year old mountain climber. Specific factors include:
  • Age – generally, the younger you are, the cheaper the policy
  • Health – likewise with age, the healthier you are, the cheaper your premium will be, and insurers encourage a healthy lifestyle with discounts if you meet their criteria.
  • Risky occupation – if you have a higher risk job (construction, mining etc), your premiums will be higher.
  • Smoker – smokers pay a lot more for life insurance, as they tend to die earlier

Ongoing full disclosure is essential

​The cost of life insurance rises as you get older, but it will also increase if you have had a health issue during your policy term. Initially, your life insurance premium is based on what you disclose, but you must disclose everything to ensure your policy remains valid. (CHECK THIS RE NZ: )If you’ve had a health scare and fail to disclose that, there will be consequences later on as insurers are quick to refuse to pay based on “non-disclosure”. Remember, a change in health means a change in premium, where as non-disclosure means a policy will be invalid if claimed on. 

Have a healthy lifestyle? You’ll almost certainly get cheaper policies

​Firstly, not smoking is going to save you thousands on life insurance. If you have just quit, you may also be covered – some policies require you to be smokefree for at least 12 months, so it’s worth checking. Again, it’s all about disclosure. If you lie and continue to smoke, your policy could be invalid if you die.
​
Secondly, many insurers encourage and reward you with cheaper premiums if you maintain a healthy lifestyle. This includes regular exercise (30 minutes a day), 5 servings of fruit and vegetables per day and low consumption of alcohol. While your policy won’t be invalidated if you sit on the sofa rather than walking the dog, the policy will be cheaper if you can make the effort. 

Switching your policy may save you money

If you already have a life insurance policy, this guide may help you save what you pay each year if you decide to change policies.

If a new quote for the same amount of cover shows a cheaper price, all other things being the same it's best to switch. Remember, buy the new cover and then, once it’s valid, cancel your existing policy. Never go ”between policies”, i.e. cancel one while you shop around for another, as your beneficiaries won’t receive any pay out should you die in that time.

​We recommend you take your time in deciding, making sure the cover matches exactly what your previous cover did. Remember full disclosure is needed about any health issues, so don’t try to save money by not declaring recent problems. ​

How to save thousands on life insurance over your lifetime

  1. Firstly, never go directly to an insurer. You’ll pay full price and have nothing to compare with so it may (and probably won't) be the best deal.
  2. Instead, start with a comparison website like <INSERT EXAMPLES AND LINK>. They compare the latest prices from a select number of insurers. They give you a range so you know what to expect to pay. However what’s not widely known is that comparison sites make a big amount of money from taking a commission, which costs you more from day one.
  3.  We recommend contacting an insurance broker…..
Cost of life insurance
Guaranteed prices over a 25-year term with $500,000 benefit
30 YEAR OLD (NON-SMOKER) 45 YEAR OLD (SMOKER)
MONTHLY TOTAL COST DIFFERENCE COMPARED TO THE CHEAPEST BROKER MONTHLY TOTAL COST DIFFERENCE COMPARED TO THE CHEAPEST BROKER
CHEAPEST INSURANCE BROKERS
BROKER NAME $XXX $XXX Cheapest $XXX $XXX Cheapest
NAME
 $XXX $XXX $XXX $XXX $XXX Cheapest
NAME $XXX $XXX $XXX $XXX $XXX $XXX
NAME $XXX $XXX $XXX $XXX $XXX $XXX
TYPICAL LIFE INSURANCE COMPARISON SITE, INSURERS AND BANK
Typical comparison site, i.e. Lifedirect.co.nz $33.01 $XXX $XXX $XXX $XXX $XXX
Typical general insurer, i.e. State.co.nz $77.29 $XXX $XXX $XXX $XXX $XXX
Typical life insurer, i.e. Pinnacle Life $27.83 $XXX $XXX $XXX $XXX $XXX
Typical direct bank, i.e. ASB $33.16 $XXX $XXX $XXX $XXX $XXX
Note: Correct as of January 2018

Getting Quotes WILL save you thousands - 2 examples

Example 1: Direct vs Comparison Site Quotes
  • We asked for a quote for a 30 year old male, non smoker, needing $500,000 in cover.
  • We found two prices for the same policy with Sovereign, $77.29 when purchased direct and $35.34 when purchased via comparison site LifeDirect. 
Example 2: Specialised Life Insurer vs General Life Insurer
  • We asked for a quote for a 30 year old male, non smoker, needing $500,000 in cover. 
  • We found two prices for the same policy; specialised insurer Pinnacle Life quoted $27.83, general insurer state quoted $77.29. 

Who are the best insurers in New Zealand, and how should I go about getting cover?

​There is a lot of money to be made from selling life insurance, and everyone from your bank to a neighbour down is road is into it. When it comes to getting the best insurance, it's a balance of price and coverage. Don't be tempted by a cheap policy with a lot of exclusions as life is unpredictable. If in doubt, talk to an insurance broker - they work with you to find the best policy to suit your situation. 

Life Insurance FAQs

I’ve heard about “Family Protection Insurance” – what is the difference between that and life insurance, and which is better?

  • Family Protection Insurance provides a monthly payment to your family for 10 years after you die. You pick the amount, and following death or diagnosis of terminal illness, your family gets the amount tax-free every month.
  • Family Protection Insurance suits young families who will need money as the children grow up. Paying for this is easier and safer with a monthly lump sum rather than a once-only payout.
  • Family Protection Insurance can work out cheaper than life insurance, but it depends on how much you insure for and your age.  
  • Insurers suggest that Family Protection Insurance “compliments” life insurance, providing regular income while life insurance is used to clear debts. We disagree – one or the other will most often be completely sufficient for looking after your family in the long term if you insure for the right amount.
​
​To give the best comparison, we’ve taken three examples:

Nathan and Natalie (both 35, with two children) want to insure for $1.2m.

  • Using life insurance (lump sum payout), the cheapest premium we found was $1,274.58 per year.
  • Using Family Protection Insurance, $10,000 per month (totalling $1.2m after 10 years) the cheapest premium we found was $1,149.72 per year, 10% cheaper than the life insurance quote.

Mike and Jenna are both 50 and want to insure for $1.2m.

  • Using life insurance, the cheapest premium we found was $4,126 per year.
  • Using Family Protection Insurance, $10,000 per month (totalling $1.2m after 10 years) the cheapest premium we found was $3,747.48, 10% cheaper than the life insurance quote.

Roslyn and Jeremy are both 40 and want to insure for $600,000.

  • Using life insurance, the cheapest premium we found was $883.79 per year.
  • Using Family Protection Insurance, $5,000 per month (totalling $500,000 after 10 years) the cheapest premium we found was $829.32, 6% cheaper than the life insurance quote.

Looking at the quotes above, Family Protection Insurance is cheaper in all three scenarios. 

Why do you recommend insuring for “10 times the salary of the highest earner”?

When a parent dies, there needs to be enough money to cover a mortgage and ongoing expenses. Insuring for 10 times the salary of the highest earner allows a good cushion to keep the family in good financial health even if the surviving parent stays at home to look after the children. Just insuring to pay a mortgage doesn’t help with any other family expense, causing great stress in the long term.

When should I get a life insurance policy?

We recommend getting it as soon as someone relies on your income, such as a partner and/or child. It’s not a comfortable feeling to insure your life, but the benefits are tremendous to your family should the unthinkable happen. If you are young, life insurance will cost less as younger people are (on the whole) healthier than older people, who pay substantially more as the risk they will die is higher. Please see our table below which illustrates this point.

Annual cost of life insurance for a $500,000 payout taken out at different ages (non-smoker, male):

​25 years old: $418.40
35 years old: $377.22
45 years old: $705.40
55 years old: $1,999.40

I've been offered “critical illness cover” with my life insurance policy. Should I get this?

​We don’t believe you should. There are many problems with critical illness cover. Firstly, it only covers specific illnesses, so while "cancer" is covered, melanoma, prostate and skin cancer probably are not. And "stokes" have their own exclusions. We're not big fans of critical illness insurance. If you think you should get it for a specific reason, we suggest speaking to an insurance broker to ensure you make the best decision.