When we’re fit and healthy, it’s hard to imagine life changing. But what would happen if we couldn’t earn an income because we fell ill or became disabled? How would our family manage financially if we died? There are types of insurance available which can ease financial difficulties should the unthinkable happen.
If there are people who depend on you financially, you need insurance to protect them.
If you die, your partner and children can be left in financial difficulty when your income is no longer coming in, even just to pay for funeral expenses. Insurance can help by allowing your family to pay off the mortgage and cover extra costs like childcare.
You also need to think about protecting your ability to earn income – whether or not you have dependants.
It can be very difficult to pay living costs and other bills if you have to give up work through illness. ACC only covers loss of income from an accident.
There are also policies called trauma (also known as critical illness), disability (or total permanent disablement insurance) and income protection insurances that pay out for a serious illness or disability.
Trauma and disability policies typically pay a lump sum of money if you’re diagnosed with one of the illnesses or injuries listed on the policy such as cancer, kidney failure, heart disease or paralysis. Income protection insurance pays a percentage of your income if you need to claim.
It’s often cheaper to buy these different types of insurance cover bundled together.
Some insurance companies offer life insurance with trauma or income protection added on. Others have separate policies, but give discounts if you take more than one.
Find out more about these types of insurances at life-info.org.nz.
The most common type of life insurance is 'term life’, which provides cover for a period of time such as 25 years or to a specific age, such as 70 or 80.
Many life insurance policies will pay out some or the entire sum insured on the diagnosis of a terminal illness. This gives you money to live on or pay for care if you are incapacitated and can’t work.
Some older life insurance policies had a savings component attached to them that were paid out at a certain date. These may not have been the most cost-effective way to save, and today it's regarded as simpler to keep life insurance and savings separate.
Life insurance and other related insurances can be difficult to understand, and no one wants to pay for something they won’t end up using!
An insurance broker or financial adviser can explain the options for cover and premiums and make recommendations. They can also look at your financial commitments and family situation and suggest how much insurance cover you need to buy.
It helps to choose a broker or adviser who is independent and not simply selling policies from one insurance company. Besides checking their qualifications, ask how the adviser is being paid for their service and to disclose any commissions being paid.