How does life insurance work? And why might you need it?

In New Zealand, life insurance is an optional commitment. But many Kiwis are choosing to invest in life insurance because it provides them peace of mind that their families will be financially protected if something were to happen to them. 

How Does Life Insurance Work?

Life insurance is designed to help your dependents financially if you pass away or fall terminally ill. When you purchase life insurance, you will agree to a sum insured. If you pass away or fall terminally ill, this sum will be paid out to the “policy owner.” This money can be used to pay off your mortgage, cover rent, and other bills. It can even be used to help pay for your children’s expenses such as school and healthcare. 

Who Should Get Life Insurance?

If you have dependents who rely on your income, such as children, a parent, or a sibling, you may want to consider life insurance. We would recommend committing to life insurance until your dependents no longer rely on you, for example, your children growing up and supporting themselves financially. It’s also important to assess the changes in your life, such as having another child or suddenly supporting a grandparent. 

If you are single, and don’t have any dependents, it isn’t necessary to get life insurance, unless there is someone you’d want to get a sum of funds in the event of your death. However, again, it is important to re-evaluate whether you might need it, depending on changes in your life, such as getting a mortgage and having children.

What are the Benefits of Life Insurance?

Peace of Mind

Life insurance gives you peace of mind that your children and any other dependents will be financially cared for if something happened to you suddenly. In this cost of living crisis, it has never been more important to invest in peace of mind, and financial security for your kids. If you have loved ones who depend on your income, would they be able to pay the bills if your income suddenly went away? If the answer is no, you should consider life insurance so that they will be able to cover the mortgage, rent and other bills. 

Protects your Children’s Home

If your children rely on you financially to pay for the mortgage or rent of the home they live in, life insurance will protect that home if you passed away and they lost your source of income. It means that your children will not be forced to leave their home during an already difficult situation. The sum that you insure for your life insurance will be paid out upon your death or terminal illness diagnosis, and can help cover the mortgage or rent so your children don’t have to worry about losing their home. The insurance pay-out can also help the adults charged with caring for them have a bit of security as they take on the responsibility of caring for them. 

Removes the Burden from your Family

If you suddenly passed away, you would not want to burden your family with having to pay your mortgage, or any other loans and your credit card balance. Life insurance means that your family will not bear the burden of your bills if you pass away. 

How Much Coverage Do I Need?

The amount of coverage you need depends on your financial situation, and your dependents. There are several factors to consider: 

• Your unpaid debts - Debts can come from a credit card, mortgage, personal loan, car finance etc. 
• Your immediate family expenses - Cover living costs for all dependents for several weeks. 
• Funeral costs - Most policies do include funeral expenses as well as the cover amount. 
• Any future spending planned - For example, the cost of university tuition for your children.

How much Life Insurance do I need?

How Much Will I Pay for Premiums?

Life insurance premiums will vary from person to person. Generally, the younger and healthier you are, the lower your premiums will be. Insurance providers will consider the likelihood of your death when determining your premiums and there will be several factors: 

• Age - the younger you are, the lower your premiums will generally be.
• Health - do you participate in regular exercise?
• Risky occupation - for example, a miner would have a higher premium than an office worker. 
• Smoker - consider quitting smoking to help lower your premium. 

Compare Life Insurance

One of the best ways to get the lowest life insurance possible is to compare. Here at Money Compare, we are all about helping Kiwis make better financial decisions. Our user-friendly platform makes it easy to compare life insurance policies so you can make a fully informed choice and find the cheapest rate and the best life insurance deal. 

Compare Life Insurance

We have partnered with leading insurance brokers at the Insurance Department, who can provide free life insurance advice and a free quote within seconds. 

Make a fully informed decision and protect your family and peace of mind. 

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Further Reading: 

Do I Need Life Insurance in NZ?

Can I get Health Insurance with Pre-Existing Conditions?