Do you need life insurance?
Life insurance is really simple - it's only important if your death is going to impact on someone else financially. If your death isn't going to impact on anyone financially you probably don't need life insurance.
If you're still reading, then you probably share one of these common reasons for having life insurance...
- You have debt, and don't want to leave this burden on your family.
- You have a family who is dependant on you; in the event of your death you want to provide for their living costs, education, and so on until they are able to provide for themselves.
- You don't want to leave funeral costs to family members.
How do you choose the right life insurance plan?
If getting quality, affordable NZ life insurance is your aim there are some rules to follow (and some traps to avoid).
Choose the right life insurance plan
Choosing life insurance is really about getting three things right – the amount of insurance (the lump sum that you choose to insure); the type of plan (e.g. should your premiums be ‘stepped’ or ‘level’? Should your plan pay out only on death – or if you suffer a serious health problem as well?); and the right insurer (you need a stable insurer that’s well priced and offers you as much flexibility as possible). We’ll look at each of these points:
How much to get? Choosing the right level of cover is important. Too much insurance is a waste of money, but too little can leave the people you care about in hot water. Think about these points:
- Your current debts (mortgage, loans, hire purchases, etc) – for most people clearing these is a priority.
- Your dependents (children, spouse, relatives) – if you suddenly died, what would happen to them? Will they need a replacement income to make up for yours? If so, how much will be needed and for how many years? Also, don’t forget costs like childcare – if your partner decides to return to work, how would childcare be paid for?
- Other costs – for example would providing an education fund be a priority for you? Or would you need to leave an additional amount of money to help your partner with their retirement savings?
The exact amount of insurance that's right for you will depend on your circumstances – make sure you discuss the points above with your partner or family (and remember your Inform adviser is here to help with this too).
What kind of plan to get? You’ll have a number of choices when setting up your plan. One will be whether to have a 'stepped' or 'level' premium. The difference is straightforward: ‘stepped’ premiums increase with age, while ‘level’ premiums don’t. Level premiums do start out higher than stepped premiums, but because they don't increase with age can be a very smart long term choice. Stepped premiums can be deceptive. They look cheap, but because they increase in price every year they do become expensive over time. Your Inform adviser can show you the exact differences, but as a rule of thumb, if you’re planning to have the insurance for longer than 8-10 years then make sure you find out about level premiums – you could save yourself a lot of money in the long term.
What if I don’t die, but become ill or disabled? These days a good life insurance plan will offer an option so that you can have all or part of your life insurance paid out if you suffer a serious health problem (like cancer, stroke, or heart disease). This will cost more, but is a wise thing to consider. The reason? A major health problem can have a financial impact even greater than death (think about what would happen if you were too ill to work – not only is your income gone, but suddenly your family has to support you too). It’s also statistically far, far more likely that you’ll suffer a major health problem than suddenly ‘drop dead’ (according to the NZ Health Information Service only 3% of deaths in NZ are classed as ‘sudden’. Most follow a long period of illness, and so financial problems can start early).
Which insurer should I choose? As you’ll know there are a ton of life insurance companies out there. Your insurer needs to be financially stable, reputable, and competitively priced of course. It’s a real advantage to have options like level premiums and early payment for major health problems available (even if you choose not to use these options now, you might at some point in the future). It’s also important for your plan to be flexible – many insurers offer (at no extra cost) the ability to increase your insured amounts if you experience certain life events like having a child, increasing your mortgage, getting a new job, etc. Discuss this with your adviser and make sure your insurer offers you more than just a payment if you die.
What about 'whole of life' life insurance? This is basically life insurance with an investment component - kind of like having a life insurance and a savings plan wrapped into one. The premiums for this are huge; part of them going to pay for the insurance and part building up as savings. The idea is that your life insurance builds up value over time - if you don't make a claim you have savings that you can access. There are some cases where this kind of insurance is worth having, they really are very, very rare. So usually our advice would be to keep your investments and insurance separate - there are much better places to put your money.
No comments:
Post a Comment