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7 things that might surprise you about life insurance

graham hill

By Graham Hill
Executive Manager, Life Distribution

21 May 2019

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Life insurance is one of those topics which can seem so complex that you just put it into the too-hard-basket.

There are lots of different types of cover and plenty of things to consider, so it’s always a good idea to talk to an adviser for help understanding your options. In the meantime, here are seven things which you might not have known about life insurance. 

1. It pays to keep your policy up to date – but it doesn’t always pay to change it

Things in your life change, and your insurance needs might change too. Milestones like buying a house or having a baby are an exciting time for anyone, but it’s also a good reason to revisit your policy and make sure you have a plan for that debt or for your family if something should happen to you. 

As with any insurance, when you review your cover you might decide that another insurer could offer you a better deal. But before you cancel your policies and make the switch, it’s important to seek advice

A new insurer means you will be underwritten again, and if you have any new medical issues or conditions you might get less cover or higher premiums by switching. An adviser will be able to explain how cancelling your policy might affect you for future cover and help figure out what will suit your future needs. 

2. You don’t have to choose just one type of cover. 

Everyone’s circumstances are different, which means everyone needs something different from their insurance policy. That’s why when you look at getting life insurance, you won’t have to choose just one type of cover. 

It might make sense for you to package together different types of personal cover – like Life, Trauma or Income Protection – under one policy. This means you have a safety net in place for yourself for different things that might come during your life, and not just for your family if you pass away.

3. Buying online and through an adviser are not always the same thing

A lot of us prefer to shop online for just about everything these days, but it’s important to know that when you’re looking at life insurance, policies you can buy online compared to those you buy through an adviser are not always apples with apples.

Quite often advisers will be able to offer you a greater range of policies, more comprehensive cover or a more cost effective structure of covers. 

But one of the big differences is the degree of underwriting that you will face. Most adviser-sold policies include comprehensive lifestyle and medical underwriting, while online policies often have higher level, limited underwriting. That means that the cover is sometimes more limited, or if you have a pre-existing medical condition your application might be declined online where an adviser-sold policy could be tailored more for your circumstances.

4. There are options when it comes to premiums 

If you’re worried about the cost going up as you get older, there are different ways you can structure your premiums. You can choose from stepped premiums, which start out a lower price and increase each year based on your age, or level premiums, which begin higher but stay locked at that price each year without increasing. 

There are benefits to both, and you can even have a combination of the two if that’s what would suit you best. 

5. Your kids might be covered too. 

Many life insurance policies offer an optional extra which allows you to insure your children or grandchildren, as well as yourself, under your policy. It means that if your child is diagnosed with one of the listed conditions, you’ll get a payout that you can use to look after them – whether it be for medical bills or to help you to take time off work. 

It’s often free to include on your policy (up to a certain amount) but you do need to apply to your insurer for each individual child you want covered. 

6. Payouts are generally tax-free. 

If you or your family are making a claim on your life insurance policy, you’ve probably had some bad news.

But the silver lining is that in New Zealand you don’t pay tax on most life insurance payments you or your estate receive which relate to illness or loss of life – so you can calculate how much cover you need knowing you’ll receive the full amount. One exception is any payments you receive under an income protection policy, as income is tax deductible. 

You also won’t pay GST on most life insurance premiums, although GST does apply to additional benefits like trauma and income protection cover. 

7. You don’t have to figure it out on your own.

Life insurance can be complex, but there is always help available. A broker or adviser can offer you personalised advice to make sure you’re getting the best policy to suit you. If you don’t have an adviser, we can help you find one.

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