Life Insurance - Compare, Top Rated Policies & Tips to Get the Right Cover

Updated 14 November 2018

What is life insurance?

Life insurance is a type of insurance contract which pays your dependants a fixed lump sum if you die during the term of the contract. The cost of a life insurance policy depends on many factors including how much cover you want, your age, gender, whether you smoke and overall health and lifestyle.

Summary of Life Insurance

The cost of Life Insurance is very competitive in New Zealand and the existence of price comparison websites to show quotes makes it more affordable than ever before.
Getting the right cover level is the most significant consideration - popular practice is to insure for 10X your pre-tax salary. For example, if you earn $75,000 per year, it is reasonable to insure for $750,000.
When it comes to buying life insurance, shop around. In some instances, we found price comparison sites quoted the same policies offered by the insurers directly for HALF the price.
A 30-year-old male/female non-smoker should be able to get a $500,000 policy for under $400/year by shopping around. As to be expected, 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, health issue or question about anything related to life insurance, they will likely be your best resource and asset for picking the best policy.

Life insurance guides

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 are 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 not to overpay. New Zealand has many sad examples of families 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 many 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 should at least consider taking out life insurance.
In our review, we show premiums starting from $600 a year for two adults, offering a $500,000 payout. Insurers accept fortnightly policy payments to make managing bills easier.

8 Important Facts 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 the life insurance policy.
The payout does not vary – what you sign up to on day one 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 $1 million), 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, you probably don't need to 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 observation is that there is a popular rule to follow - 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 your family would need upon your death (outlined below), and make that the cover amount.

In estimating your cover amount, add up:

All of your unpaid debts – i.e. credit card, mortgage, personal loans and car finance etc. This includes any loans from family members as well.
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.
$10,000 for funeral costs (although most policies include funeral expenses in addition to the cover amount.
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. In most cases, it’s almost always cheaper than two single policies, and easier and quicker to set up than two single policies. If you split from your partner, your insurance premium can be re-assessed on an individual basis.

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 age above 35 years of age, and if you have had a health issue, your policy price will be affected. If you’ve had a health scare and failed 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, whereas 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 smoke-free 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 an effort.

Switching your policy may save you money

If you already have a life insurance policy, the best buy guide (below) 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 payout should you die in that time.

We recommend you take your time in deciding, making sure the cover lines up with what your previous cover offered. Remember full disclosure is needed about any health issues, so don’t try to save money by avoiding your obligation to declare recent problems.

Life Insurance Best Buys

How to save thousands on life insurance over your lifetime

Firstly, never go directly to an insurer first. You’ll pay full price and have nothing to compare with so it may (and probably won't) be the best deal.
Instead, start with a comparison website like Trade Me's Life Direct. They compare the latest prices from a select number of insurers and aim to give the consumer all of the relevant information to make a decision. Trade Me Insurance confirms that prices shown on their Life Direct website are the same rates offered by all insurance brokers, unless a special agreement has been reached. Life Direct does not give insurance advice.
If you have a specialist health need, family situation and/or prefer to talk to someone directly, contacting an insurance broker is a sensible step.

Our Quotes

We obtained 60 quotes from 15 insurers for four individual policies each requiring $500,000 of cover, as outlined below.
While every policy is different, our Best Buys do indicate the range in price among insurers.
The results are below, and indicate a large variation in pricing.

30 YEAR OLD MALE (NON-SMOKER)

Insurer	$ Annual Premium
OnePath#	377
BNZ***	398
Sovereign#	409
Pinnacle Life**	417
Cigna#	425
Asteron#	430
AMP#	437
Fidelity#	451
PartnersLife#	466
Southern Cross	472
AIA#	475
AA Life	510
State*	927
AMI*	927

35 YEAR OLD FEMALE (SMOKER)

Insurer	$ Annual Premium
BNZ***	553
Sovereign#	554
Pinnacle Life**	554
OnePath#	577
Asteron#	590
AA Life	590
Fidelity#	591
AIA#	595
Cigna#	596
AMP#	607
PartnersLife#	611
Southern Cross	662
State*	1,247
AMI*	1,247

45 YEAR OLD MALE (NON-SMOKER)

Insurer	$ Annual Premium
AIA#	705
Pinnacle Life**	720
OnePath#	728
AMP#	729
Sovereign#	735
Cigna#	741
Asteron#	755
PartnersLife#	772
Fidelity#	791
BNZ***	801
Southern Cross	823
AA Life	915
State*	1,715
AMI*	1,715

55 YEAR OLD MALE (SMOKER)

Insurer	$ Annual Premium
AIA#	4,530
Pinnacle Life**	4,567
BNZ***	4,635
Sovereign#	4,657
Cigna#	4,710
Asteron#	4,845
PartnersLife#	4,918
AMP#	4,958
OnePath#	5,055
AA Life	5,120
Southern Cross	5,233
Fidelity#	5,382
State*	10,994
AMI*	10,994

Our quote data:
Quotes presented above are BEFORE any Healthy Lifestyle discount, Member Discounts, first-year discounts and multiple insurance policy discounts etc and have been adjusted where necessary.
* Cover provided by Simple Life and underwritten by Sovereign Assurance Company Ltd. No annual premium policy quote provided - the quote above represents the total of 12 monthly quotes.
**Premium included a 20% discount for online signup (year 1 only) and healthy bonus - we have grossed up the quote 20% to make it comparable with other providers
***No annual premium policy quote provided - the quote above represents the total of 12 monthly quotes.

Figure 1 - Average Life Insurance Policy Cost by Age 20 - 70 (Male, Non-Smokers)

Top Tip - Getting Quotes WILL save you thousands over your lifetime - 2 examples

Buying life insurance is not as transparent as it should be. Despite the number of providers in the market, there is an enormous range in cover.
We found that specialist life insurers tended to offer better value than their competition, and that price comparison websites such as InsureMe and Life Direct offered quotes from well-known brands which were, on occasions, cheaper than going directly to the insurer.

Example: 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 (including one-off discounts, otherwise approx $35.00), general insurer State quoted $77.29.

Frequently Asked Life Insurance Questions

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

Family Protection Insurance is a specialist insurance policy that provides a monthly payment to your family for a fixed number of 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, receiving 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 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 our examples, Family Protection Insurance is cheaper in all three scenarios. But every family situation is different and this may not always be the case.

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 an excellent 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 expenses, 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.

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

25 years old: $475.40
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?

It depends. We see 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.

Buying a Life Insurance Policy - Balancing Price and Coverage
There is a lot of money to be made from selling life insurance, and for this reason banks and other companies offer it as an add-on service. 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 - life is unpredictable and you want a policy that is clear. If in doubt about anything, talk to an insurance broker - they work with you to find the best policy to suit your situation.