Buying life insurance is one of the most important financial decisions you’ll make. If there are people who depend on you financially, you may need insurance to protect them.
Life insurance includes income protection insurance as well as insurance against the risks of death, injury or serious illness. It can be complicated so many people work with an adviser to find the best option for them.
Life insurance advisers
Insurance advisers and brokers have an obligation to act with care, diligence and skill under New Zealand law.
They are legally obliged to provide a clear and balanced comparison of your existing and new insurance policies. If they can’t (for example because they don’t sell your existing product), they must tell you this. Most insurance advisers only deal with a few life insurance providers.
Most advisers work on commission when providing insurance advice but only some advisers have to tell you how they’re paid. If they don’t tell you, ask. It’s important to be sure your adviser is looking after your best interest and not influenced by a commission payment or reward. Find out more about what you should expect from your adviser.
Choosing a product
Life insurance is personal to you and your own circumstances. Think about the type and amount of cover you need, to prevent being over or under-insured.
Life insurance policies and premiums can vary greatly. Find out what you would and wouldn’t be covered for under each option. Also, look carefully at price. Policies that are cheaper initially can be more expensive long-term. Most premiums go up annually based on your age or inflation.
For more information about types of insurance, including life insurance, see the Sorted guide to life insurance.
5 things to keep in mind, when buying life insurance
1. Policy definitions can differ between providers.
It’s important to understand your insurance provider’s definitions of key policy terms such as ‘permanent disability’, ‘employment’ and serious medical conditions. A financial adviser can help you with this.
2. Be honest.
If an insurer finds out you’ve lied, or you haven’t disclosed all your medical conditions or lifestyle choices they can change the terms of your cover or cancel benefits. Most insurers have very detailed questionnaires for you to complete but if you are unsure about specific conditions you need to disclose, ask your insurer or adviser to clarify.
3. Tell your family about the products you hold.
If you have life or funeral cover, tell them so they can make a claim when you die.
4. Make sure you’re not doubling up on insurance.
Are you already covered through another product?
5. Remember to revisit your policy regularly.
Particularly if there’s a major change in your life – getting married, buying a house, the birth of children, changing profession, or paying off your mortgage.
Consult the Sorted guide to life insurance for more information on the common terms used in Life Insurance policies and on what to consider when purchasing an insurance product.
Switching policies
Changing your policy or provider needs to be carefully worked through. You may gain some benefits (such as a reduced premium) but you need to make sure you won’t also lose some benefits. For example, you could have a claim denied that might have been accepted under your original policy. To avoid getting caught out, keep your old policy running until the new policy is in force. If your adviser is suggesting you switch to a new policy, make sure you understand what the benefits are for you. Check out our five tips below:
When things go wrong
If you’re not happy with your adviser or your provider, you should contact them directly. If you’re not happy with how your complaint is dealt with, you can take it to the providers’ dispute resolution service. Find out more about resolving problems.
Regulatory reviews of Life Insurance in New Zealand
The Financial Markets Authority (FMA) and Reserve Bank of New Zealand (RBNZ) published a joint review of 16 New Zealand life insurers – January 2019.
We also published the result of four reviews into life insurance replacement business during the period 2016-2018.
