It’s a bit dark to call it death cover, so we say Life cover, or survivors’ income.

Essentially, this is a lump sum payment paid to a nominated benefactor in the event of your death, a terminal illness or if you’re in an accident you’re unlikely to survive.  

It’s a way or saying, yep, I’m gone, but here’s an amount of money so you, my dearest, and the kids, are going to be OK. Or, I leave no one behind but the (insert favourite charity) will be receiving this donation, and I’m fine with having a wing of the building named after me.  

What is life cover?

The idea is that in the event of your passing, your beloveds get a big chunk of change and use it pay off the mortgage, credit cards, student loans and reset on your finances. It is also there for children (or adult) education and their on-going up-keep costs. You can spend it on what you like, how you like. It isn’t ‘cheap’ per se, but it is, literally, a cover that pays out in the worst possible event and the chances of this (the insurance company’s risk team / reinsurers believe) is pretty slim.  

How do you do it?

There are a couple of ways you can structure this Life cover. Stepped, or rate for age as it’s sometimes referred too, is a cover amount that increases each anniversary. It’ll go up with age and inflation (CPI). You have options to keep the cover level the same, not take the CPI increase etc, that help with keeping the premiums in check. This is also how you can structure the family protection or ‘survivors’ benefit, which pays the life monthly benefit after you die (instead of a lump sum). Another option you can choose, is Level Life cover, which is  more expensive when you take out the policy, however the premiums don’t increase with age.  

Is it really cheaper than coffee?

There are some misconceptions around the cost of Life insurance.  

Is Life insurance more expensive than a cup of coffee? Well, depends how much coffee you drink. And, given the café coffee culture we live in, how much you’re paying for said cuppa. I had a brew the other day (large, takeaway cup) and it was $7. The average coffee let’s say is $5. Coffee drinkers may balk at saying ‘one per day’ but you may purchase one and have another at home.
One (purchase) per day, five days a week is $25 per week. $750,000 Life cover for a 40-year-old non-smoker is approx. $15 per week. Age, Gender and smoking status and the sum assured you want are the key drivers to the premium.  

Ok, but what about tax?

A quick congratulatory shout out to the American IRS who won the lottery recently. There was a winning ticket there earlier this year where some lucky punter won $1.337 billion (yep, Billion)!. To take the lump sum payment, after taxes, the ‘winner’ walks away with just over $491 million.  

Life insurance in NZ is not taxed, so if that worst scenario was to come to fruition, then, in the above scenario, $750k would be coming your way. Not quite $490 million, but still, enough to pay the bills..

Just have the conversation and find out your options  

Life insurance is just a small part of the overall risk picture that can be in place and can be discussed with your adviser. Often, teaming up your Life cover with other covers, such as mortgage protector and trauma can have other benefits, like multi-benefit discounts.  

Ask yourself what’s important to you, what could go wrong, how likely is this to happen and what impact it will have on the Family. Then ask yourself what you can do to reduce or prepare for those risks, and where you have a gap that insurance can help with.

It can be difficult thought to have, a tricky conversation to muster but it is an easy thing to arrange and in the long run, it is financial stability for those you care about if you’re no longer around.

‍

Simon.

‍

About Simon  

Hi, I’m Simon a Financial Advisor here at Velocity Financial. I enjoy working with my clients to help demystify all the Mortgage, Insurance and KiwiSaver fine print, and help get them to where they want to be. I am dedicated, thorough and offer professional advice that works for you. I like to help people on their journey and be a trusted person to guide them through really important events in their lives such as the home buying process. I help my clients collaborate with valuers, builders, lawyers and real estate agents to ensure a seamless experience. That satisfaction of reaching the goal with the least amount of stress for my clients is hugely rewarding. I navigate unique scenarios and tailor lending solutions for individual circumstances to save money and time. As a proud father of two and avid supporter of all my children’s endeavours, I know just how precious that time is. On the weekends you’ll also find me mountain biking, surfing, or checking out NZ’s great walks.

Disclaimer: Simon O’Neill (FSP534466) is a Financial Adviser with Velocity Financial (FSP95466). No investment decision should be taken based on the information in this blog alone. Please see Simon’s disclosure statement on our website.

‍