As always, the content below is meant as general information to give you a better understanding of this topic, and is subject to our terms and conditions. You should seek appropriate personalised financial advice from a qualified professional to suit your individual circumstances.
New Zealand is one of the most under-insured countries in the developed world. We’re good at covering our ‘stuff’ - but we ignore our most important assets.
The different types of insurance
Most of us understand the basics of insurance. We pay an amount of money to an insurance company on a regular basis, so that if something bad happens, they foot the bill.
It gets a little more complex when we look at the different types of insurance available.
Type 1: Insuring your ‘stuff’
This is what people generally think of when they hear the word ‘insurance’ - it’s when we cover the physical things, like our car, boat, and home & contents. If they are damaged, or stolen, we can replace them with the insurance money we receive.
Having this type of insurance is important, but it’s just the tip of the iceberg
Type 2: Insuring ‘yourself’
This is the next level of insurance, and usually the most important
For most of us, our most important asset isn’t something tangible like a house or a car. It’s our ability to earn income now, and in the future
We can insure against many of the things that might stop us from being able to earn in the future, such as temporary setbacks from medical illnesses, or even permanent disabilities.
The 4 different kinds of ‘Type 2’ insurance available
Medical Insurance
Pays for your medical bills if you get sick
Provides private treatment straight away (no waiting for months in the public system)
Gives you access to non-pharmac approved drugs (i.e. expensive cancer treatments)
Kiwis use their medical insurance an average of four times before they turn 65.
Income Protection Insurance
This type of policy will pay a percentage of your income into your bank account each month, if you’re unable to work because of an injury or illness
Most people that have to take off work are doing so as a result of illness, not an accident (this means they’re not covered by ACC)
1 in 5 Kiwis will use their income protection insurance in their life and will be off work for an average of six months.
Trauma Insurance
This policy pays a lump sum of money if you are diagnosed with a serious illness
This money can be spent on whatever you like, for example paying off your mortgage, alternative treatment etc.
If you don’t have an income (i.e. you are a stay-at-home parent) this money can be used to replace your income protection)
Cancer is the most common illness that triggers trauma payouts in New Zealand. 1 in 3 Kiwis claim on their Trauma insurance.
Life Insurance
This insurance policy pays a big lump sum to your family in the event of your death, or if you are diagnosed as terminally ill
It gives financial stability to your loved ones, even if you’re not around. It can be used to pay off debt, and provide ongoing support to your family
Who do you want this money to go to if you pass away? You’ll need to specify this in you will. Otherwise the courts will decide
About 20% of Kiwis die between 18 and 65.
The situation in New Zealand
ACC
Many Kiwis are unfamiliar with what ACC does and doesn't cover. ACC covers you in the event of an accident (even if you were doing something silly at the time). If you are off work because of this accident, they may cover up to 80% of your income. However, research shows that only about 12% of people in hospital are there because of accidents. Meaning the other 88% are dealing with illnesses and other issues that ACC does not cover.
The Public Health System
While we are lucky to have a pretty comprehensive public health system in New Zealand, there can be very long wait lists for treatment. Everyone is ranked in order of urgency, meaning some people can end up waiting a long time, and can be pushed back in line if a more pressing case comes up. Also, not all medications are subsidised - there are limited funds available, and the most commonly-used medications are at the top of the list when funding decisions are made. This means that both rare and innovative/new medications can miss out on being subsidised. Good medical insurance can combat both these issues.
Financial Advisers, and why you should have them look at your insurance
‘Good’ insurance means you have the right type of cover, the right level of cover, and policies that will pay out at claim time. Financial Advisers can help make sure you get ‘good’ insurance in place.
The whole point of paying for insurance, is for it to actually work and pay out when you need it. Aside from making sure you have the right cover in place, an Adviser will actually help you at claim time. If something goes wrong, they can step in and fight for you.
Your adviser will touch base with you once a year year, to see if you need to change any details on your insurance policy. This is to ensure it continues to meet your needs, even when things change in your life, for example: getting married, having children, purchasing a new home etc.
You don’t pay for the Adviser’s help. They just get paid a fee by the insurance company to help you set it all up. Your insurance will cost the same regardless of whether you use an adviser, so it’s a bit of a no-brainer.
Checklist
We strongly recommend this is done with a financial adviser. They will walk you through each step, and help you with ongoing suitability as you go through various life stages
Create a Risk Profile:
Make a list of all your assets, liabilities (e.g. debt) and dependents (e.g. kids)
Of the four categories, evaluate which types of insurance are required (if any)
Decide on the required levels of insurance (i.e. how much you will be covered for)
Make sure the insurance premium is in line with your budget.
Navigate any niggles. For example; blended families or shared business/assets
Make sure the finer details are correct, i.e. who owns the policy
Fill out an application and submit the application to a good quality insurance company. (Ensure all information is accurate and up-to-date. Most denied claims are from the client not disclosing information).
Answer any questions the insurance company may have (usually medical or financial-related)
Sign the documentation
Recurring - Review once a year with your adviser, to make sure the policies are still in line with your needs (i.e. no big changes in your life that impact your insurance cover)