If you have a family or a mortgage should consider taking out life insurance cover to protect your loved ones should you die.
In exchange for a relatively small insurance premium, a lump sum (the sum assured as specified in your life insurance policy) is paid out in the event of the death of the person insured. In most life insurance policies this would also be paid if that person becomes terminally ill.
What Does Life Insurance Cover?
Life insurance cover can cover the costs of your mortgage (and other debts), the funeral expenses, and the living costs for the surviving family members.
Pay Off Your Mortgage
If we were to die tomorrow we would like to know that our family can continue to live in the family home and therefore most people will want to ensure that there is some life insurance cover available to provide the cash to repay the mortgage.
Most people might want to have a mortgage protection cover that pays their repayments when they are unable to work too.
The cost of a funeral is not cheap, and they are only getting more expensive.
As well as having life insurance cover for paying off your mortgage, it is always good to have some additional money available to cost the costs of a funeral and any final expenses.
Many people want to keep the insurance for funeral expenses separate to any mortgage protection plans that they have and therefore you may want to consider a dedicated policy for a funeral plan.
Living Expenses For Surviving Family Members
It is great that you have thought about leaving a freehold home for your family, but many people do not consider how the family will pay the costs of daily living, the expenses for upkeep on the home and the costs of educating the children.
While the family has two incomes all of these expenses can be met, but if they have to survive on just one income then things might not be so easy.
The Cost Of Life Insurance Cover
Most life insurance cover available in New Zealand is similar – they pay out the insured amount upon death and terminal illness.
Therefore a big consideration needs to be the cost.
You can of course phone around the insurance companies and banks and try to get the cheapest life insurance cover, or you can speak to a broker that can produce a price comparison for you.
Be Careful When Comparing Prices
There are some issues that you need to be aware of.
Most life insurance policies are priced on a “rate for age” basis which means they will get more expensive as you get older. This is fine for life insurance cover that is temporary (for covering debt) but you might want to consider a different structure for any longer-term requirements like a funeral plan.
You need to also be careful with some mortgage protection covers as they may only pay the amount of the mortgage owing at the time of death which often means you have been paying for more cover than you will ever receive.
Health Issues Can Mean Higher Premiums
Insurance premiums are set with the expectation that you are in “normal” health and therefore if you have any health issues then you need to expect that you may be charged more. Different insurance companies may be more lenient and some may accept some health issues at standard rates.
Speak to an insurance adviser and they can advise on how any health issues would be treated.
The key thing is to be honest when applying and provide as much information as possible so that there is never an issue at claim time. It is no use having a cheaper policy now, only to have a claim denied and therefore your family left financially shattered.
Get Advice From Professionals
In New Zealand most insurance brokers and mortgage brokers are paid commission by the insurance companies and therefore will provide you advice for free. It can therefore be a very good idea to speak to a broker about your requirements and see what they would suggest.