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Why you need life insurance

Why you need life insurance
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Not me! I'm never going to die. Pity the poor life insurance salesman trying to get through to a 20 or 30-something about the need for life insurance. We all die eventually and some of us will leave our loved ones in dire financial straits because we didn't think insurance was necessary.

Here are 10 tips when it comes to life insurance:
1. All life insurance is not created equal
Some life insurance is better than none. That's not to say all policies are created equal. Insurance in New Zealand is riddled with get out clauses and two "similar" life policies may have very different wording. Read your policy well to avoid surprises.

2. Buy from a professional
When your bank suggests a customer buys life insurance, it's a sales pitch. The teller or personal banker or mortgage manager has "performance targets" and that means selling services to you and me. Life insurance is a good money spinner for the bank. Go and see an insurance broker instead. He or she can sift through policies from different providers and find one most suitable for you. A good broker will also advise on issues such as who (or what because you can leave your life insurance to a trust) the money should be left to.

3. Consider the add-ons
Other policies such as redundancy cover and trauma (major illness) cover are often sold as add-ons to life insurance. This is usually a cheaper way to buy this insurance than through the bank when you're taking out a mortgage.

4. Beware of pre-existing conditions
Life insurance policies have exclusions for pre-existing conditions. That's illnesses that you've got the symptoms of before you take out the insurance. This includes illnesses you may not know you have at the time of signing on the dotted line.

5. "Better policies" can be worthless
Life insurance sales people make extra commission by "churning" clients. They tell you that the policy your previous broker sold you isn't as good or is more expensive as the one from XYZ. If, however, your health has changed in the meantime you may not be covered for an illness your old policy would have paid out on, because you now have "pre-existing illnesses".

6. Life insurance is important even if you don't work
What happens if the at-home parent becomes seriously ill, disabled, or dies? Who pays to look after the children? All too often this scenario catches a family out unawares.

7. It can happen to you
By the age of 39, four out of 100 males would have died. By 49 that's six. For women the figures are two and four.

8. Life insurance may pay out before you die
Many life insurance policies will pay a lump sum if you're diagnosed with a terminal illness. That gives you money to live on and pay for treatment while you're ill.

9. "Term" life insurance is cheaper than "whole of life".
Term life insurance covers you for a period of time, such as the life of your mortgage. "Whole of life" insurance covers you until you die. Some whole of life policies only make you pay premiums until the age of 65, but continue to cover you after then.

10. How much cover?
As a rule of thumb you should ensure the sum insured is sufficient to cover your funeral bills and mortgage as well the remaining partner's living costs and child care.

Finally, to steal a phrase from Nike, "just do it". You could live (or die) to regret it if you don't. And that's from someone who doesn't get commission from selling life insurance.

Have your say: do you have life insurance?

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User comments
If you do apply to change insurers you will usually need to complete a full proposal with the new insurer and declare all health issues. if there is any health issue that has arisen since you took out your current policy, if you have mentioned this, the new insurer will gather any medical information they require, adn tell yo uif they wil cover it, charge extra for it or exclude it, BEFORE your new policy begins. If the new policy excludes something or now becomes more expensive, you can simply stay with your current policy. If you have declared everything relevant, it is very unlikely that there iwll be any surprises in the new policy. Finally, not many Life Insurance companies offer Whole of Life Insurance anymore. Term life is far less expensive, and as debt levels and living costs have increased, Whole of Life has become largely unaffordable and lack of sales have led to it being withdrawn by most insurers. Apart from these points, this is a great article.
In most cases, if you have declared any health issues, the insurer will gather more information before offering to accept your application for cover. With Life Insurance this might result in a loading - an extra charge - to cover that condition, of cover may be deferred or declined. While I'm sure most bank staff are well trainined, they can only recommend the product their bank offers and cannot legally give any opinion on how their bank product compares with other Life Insurance policies (unless the individual is an Authorised Financial Adviser and has knowledge of other products, which is unlikely). Many bank Life Insurance products are more restrictive than those issued by Life Insurance companies, e.g. bank products typically wil NOT pay out for death during a criminal act, like speeding, going therough a red light, being involved in a protest or riot
The main reason to take out sufficient Life Insurance when you are younger is the fact that the probability of not being underwritten by the Insurance company is low. `The older you get, the more chance there is that your health situation has been changed and that either you cannot be underwritten by the Insurance company or that the price you will pay will be considerably higher. So people should exercise their Insurability option in their life when this is most probable and cheap. Of course not denying the points above.
Gosh. Firstly Diane it is not cost effective for Insurance Companies to get every persons medical records prior to a policy being issued. It is simple, answer ALL questions honestly and truthfully, disclose the dizzy spells and allow the Insurer the opportunity to check out the dizziness and decide whether to offer terms or not. To do otherwise is being dishonest and will be treated accordingly. As for my Banker friend above who talks about being "extensively trained" in the Insurance field I would enquire how much of your time is devoted to Insurance and how much to Banking-Mortgages-Investments etc? I have spent 100% of my working time for the last 28 years in the Insurance Industry and every week attend some form of training or knowledge based learning. Banks should stick to Banking UNLESS they wish to employ full time professional Insurance Advisers, you wouldn't go to a part time lawyer would you?
I am proud to work for one of NZ's main banks. A very small part of our income is made up of performance rewards. This compared to an insurance broker who derives 100% of thier income from thier performance. So think again, who do you really consider would be more likely to make a brazen sales pitch, oversell an insurance solution or worse still, direct a customer in the direction of whichever insurance company makes the biggest commission payment??? "Not me" I hear my fellow colleagues resounding. We bankers are extensively trained to arrange life insurance according to the needs of our customers. No sales pitch in sight anymore, just genuinely interested bankers who are keen to meet the needs of our valued customers.
Thanks for your comment "Very Concerned". It only means illnesses that you have symptoms of. For example if you've been to the doctor with dizzy spells before you take out the insurance and later are found to have Multiple Sclerosis, if the two can be linked, the insurance company may decline the claim. This is an actual case I heard of. The doctor hadn't diagnosed MS, but when the MS diagnosis came later, the dizzy spells were linked with it. I really don't like the pre-existing conditions clauses. I believe that insurers should look at a person's medical records when the policy is first taken out and rule then and there what they will and won't cover.
Under point 4 you state as follows "Life insurance policies have exclusions for pre-existing conditions.........This includes illnesses you may not know you have at the time of signing on the dotted line." Working on that basis that means EVERYTHING is excluded. Which policies are these as I want to avoid them, or is it every policy?

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