Insurance Types Explained: NZ Guide

Understanding Personal Insurance in New Zealand

Insurance protects your most valuable asset: your ability to earn income. This guide explains the main types of personal insurance available in NZ.

The Five Main Types

1. Life Insurance - Pays out when you die
2. Income Protection - Replaces income if you can't work
3. Trauma/Critical Illness - Lump sum for serious illness
4. Total Permanent Disability (TPD) - Lump sum if you can't ever work
5. Health Insurance - Covers medical treatment costs

Life Insurance

What It Covers

Pays a lump sum to your beneficiaries when you die.

Who Needs It

• Parents with dependent children
• Anyone with a mortgage
• Business owners/partners
• Those whose family depends on their income

How Much Coverage?

SituationCommon Cover RangeSingle, no dependentsMinimal (funeral costs)Couple, no kids, mortgageOutstanding mortgage + 1 year incomeFamily with kids10x income OR mortgage + education + 5 years incomeBusiness ownerBusiness debt + succession planning

Typical Costs

$30-$150/month for $500,000 cover (varies by age, health, smoker status)

Income Protection Insurance

What It Covers

Pays up to 75% of your income if illness or injury stops you working.

Key Features to Understand

• Waiting period: 4 weeks to 2 years before payments start
• Benefit period: 2 years, 5 years, or to age 65
• Agreed vs Indemnity: Agreed locks in your income level

Who Needs It

Almost everyone who works, especially:

• Self-employed (no sick leave)
• Main income earner
• Those with limited savings
• Mortgage holders

Cost Factors

FactorImpactOccupationManual = higher costWaiting periodLonger wait = lower costBenefit periodShorter = lower costAgeOlder = higher cost

Typical cost: $80-$300/month for $5,000/month cover

Trauma/Critical Illness Insurance

What It Covers

Lump sum payment if you're diagnosed with a serious illness like:

• Cancer
• Heart attack
• Stroke
• Major organ transplant
• Multiple sclerosis

Who Needs It

• Those with family history of serious illness
• Anyone who'd want treatment options
• Those wanting to take time off work for recovery
• People with mortgages or debts

How Much Coverage?

PurposeCommon Amount RangeIncome replacement (1-2 years)$100,000-$200,000Mortgage payoffOutstanding balanceTreatment + recovery$100,000-$300,000

Important: Survival Period

Most policies require surviving 14 days after diagnosis before paying out.

Total Permanent Disability (TPD)

What It Covers

Lump sum if you become so disabled you can never work again.

Definition Types

• Own occupation: Can't do YOUR job
• Any occupation: Can't do ANY job
• Activities of daily living: Can't perform basic tasks

"Own occupation" provides better coverage but costs more.

Who Needs It

• Primary income earners
• Those without substantial assets
• Mortgage holders
• Anyone with dependents

Health Insurance

What It Covers

Private medical treatment costs:

• Specialist consultations
• Surgery and hospital stays
• Tests and diagnostics
• Some policies: GP visits, dental, optical

Why Consider It

• Shorter wait times than public system
• Choice of surgeon/hospital
• Private room
• Treatment options not funded publicly

Policy Types

TypeCoversTypical CostSurgical onlySurgery, hospital$50-$150/monthMajor medicalAbove + specialists, tests$100-$250/monthComprehensiveAbove + everyday (GP, dental)$200-$400/month

How Insurance Types Work Together

ScenarioInsurance That HelpsYou dieLife insuranceDiagnosed with cancer but can still workTrauma insuranceBreak leg, off work 3 monthsIncome protectionStroke, never work againTPD + possibly traumaNeed surgery, private hospitalHealth insurance

Common Mistakes to Avoid

1. Under-insuring - Cover that's too low to actually help
2. Over-insuring - Paying for coverage you don't need
3. Wrong policy type - Health insurance doesn't replace income
4. Not disclosing health issues - Can void claims
5. Letting policies lapse - Losing cover when you need it most
6. Not reviewing regularly - Needs change over time

How Much Should You Spend?

General guideline: 5-15% of income on all insurance, but this varies widely.

IncomeInsurance BudgetPriority Order$50,000$200-$600/monthIncome protection → Life → Trauma$100,000$400-$1,200/monthIncome protection → Life → Trauma → Health$150,000+$600-$1,800/monthAll types as needed

Getting the Right Cover

An insurance adviser can help you:

• Assess your actual needs
• Compare policies across insurers
• Find suitable value for your situation
• Ensure proper disclosure
• Manage claims if needed

Note: Many insurance advisers earn commission from insurers, so their service may be free to you. Ask about their compensation structure.