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.
COVID-19: Updating your insurance cover
If you’re looking to cut expenses, you may have considered reducing or cancelling your personal insurance.
It’s important to protect yourself financially so think hard before you make a change and take advice.
Here are 5 things to consider:
1. Premium holidays let you temporarily stop payments to your insurer. But make sure you know what this actually means. For example, will you have to repay them later? And will you still be covered if you suffer a loss?
2. Cover suspensions mean your policy is temporarily put on hold. Ask your broker or insurer what will happen if you suffer from an unforeseen event or loss during the suspension period.
3. Explore your options on how to reduce your premiums – for example, increasing your excess, bundling policies if you’re with multiple insurers, or switching to another insurer.
4. Reinstating your insurance may have conditions attached, especially if your personal circumstances change during any suspension. For example, if a health problem arises you may need to declare it, which could affect your premiums.
5. Get everything in writing to help ensure there’s no dispute later on. Phoning may be quicker but it’s best to get what you’re told in writing. Ask for email confirmation of any changes made. Get this from your insurer, even if you’re using a broker.
More:
See what we've told insurers we’re expecting to see from them during COVID-19
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.
5 things to keep in mind, when buying life insurance
- 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.
- 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.
- 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.
- Make sure you’re not doubling up on insurance.
Are you already covered through another product?
- 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.
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:
5 ways you could get caught out when switching your life insurance policy
- There may be differences in cover.
For example, you may have a medical history of heart disease, but the new policy has less coronary cover.
- Your new policy may require a new 'qualifying period'.
You may lose the ability to claim for a period of time after you purchase your new policy.
- Existing health problems may be excluded from your new policy as a 'pre-existing condition'.
You could have a claim denied that may have been accepted under your original policy.
- Premiums may change.
You may pay for more insurance you don't need or may pay lower premiums in the short term but higher premiums in the long run.
- A difference in your provider's financial stability, customer experience, service or claims processes.
You may end up paying higher premiums or find it harder to make claims.
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.
