How to find the best life insurance

Introduction

When shopping around for a life insurance policy that suits you, there are some basic questions you should ask yourself.

What type of life insurance should I get?

"Term" life policies pay out the sum insured if you die while the policy is in force.

Level term insurance: Pays out on the death of the life insured. The cover usually lasts for a number of years (say 5 or 10) or to a specified age (say 65).

Yearly renewable term: Similar to level term insurance except the premium is recalculated on a regular basis (normally each year).

Total and permanent disablement: Some policies allow addition of total and permanent disablement cover to a term life insurance cover. This will pay out if you suffer a serious illness (or following a bad accident) that means you will never work again.

Mortgage protection: Similar to level term insurance. Pays out enough on your death to cover the amount of your mortgage.

For more information see the Sorted website: http://www.sorted.org.nz

How much should my insurance policy be worth?

In different stages of your life, your need for life insurance changes. If you're young with no mortgage or dependants, you may not need it, but if people rely on you for your earnings or caregiving, then you do need life insurance - and you need enough of it.

At the minimum, life insurance should cover your debts, funeral expenses, full repayment of your mortgage (including any early-repayment fee), and your family's immediate living costs.

You should add in the amount required to replace a lost income, or pay for a caregiver.

Consumer website has more information, see: www.consumer.org.nz/topic.asp?category=Money&docid=578&subcategory=Insurance&topic=Life%20insurance

Things to watch for:

Exclusions: The most common exclusion is suicide within 13 months from the commencement of a policy.
Inflation Indexation: An adjustment for inflation each year.
Future Insurability Options: Some polices will allow you to increase the sum insured without further medical evidence when special events happen in your life.
Terminal Illness: Most policies will pay out the insurance if you suffer a terminal illness when you are likely to die within 12 months.
Waiver of Premium: For a little extra, your premium will be waivered if you suffer a disability and can not work.

Should I use an insurance broker?

You may wish to consider using an insurance broker to obtain insurance. The broker acts as an intermediary between you and the insurance company. While some brokers will charge you a fee, most are paid on commission by the insurance company. Financial advisers can also be useful in this area. Two websites can help with locating insurance brokers and financial advisers:

The Insurance Brokers Association of New Zealand www.ibanz.co.nz and The Institute of Financial Advisers www.ifa.org.nz

Checking the rating of your insurance company

The Ministry of Economic Development issues a schedule of ratings and inspections of insurance companies through its Insurance and Superannuation Unit. It ensures that superannuation and insurance markets comply with their responsibilities under relevant legislation. To view go to: www.isu.govt.nz

Cautionary notes
  • Taking out life insurance is an important decision and it is best to shop around - don't just go with the first company you approach.
  • An insurance policy is a legal contract; it imposes rights and obligations both on the insurance company and on you, the insured. You may wish to obtain legal advice as to the terms of a proposed policy before you take it out.


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