Insurance & Protection Questions

New Zealand has several types of personal insurance designed to protect you and your family financially: **Life insurance:** Pays a lump sum to your beneficiaries if you die. Essential if others depend on your income. Typical cover: enough to clear debts plus several years of income replacement. **Income protection:** Replaces a portion of your income (typically 75%) if you can't work due to illness or injury. Often considered the most important insurance for working-age people. **Trauma/critical illness:** Pays a lump sum if you're diagnosed with a specified serious illness (cancer, heart attack, stroke, etc.). Helps cover treatment costs, lifestyle adjustments, or time off work. **Total and permanent disability (TPD):** Pays a lump sum if you become permanently unable to work. Sometimes bundled with life insurance. **Health insurance:** Covers private medical treatment, specialist consultations, and surgery. Reduces wait times compared to the public system. **Mortgage protection:** Specifically covers your mortgage payments if you can't work. Similar to income protection but limited to housing costs. An insurance adviser can assess which types and levels of cover are appropriate for your situation.

The right amount depends on what you're trying to protect against. A common approach: **Calculate your needs:** 1. **Outstanding debts:** Mortgage balance + other loans 2. **Income replacement:** Annual income × number of years your dependents need support (often until youngest child is independent) 3. **Education costs:** If you want to fund children's education 4. **Funeral costs:** Typically $8,000-$15,000 in NZ 5. **Emergency buffer:** 6-12 months of household expenses **Subtract your assets:** - Existing savings and investments - KiwiSaver balance (paid to estate) - ACC lump sum (if death is from accident) - Any existing life insurance **Example:** - Mortgage: $500,000 - Income replacement (10 years × $80,000): $800,000 - Education: $100,000 - Funeral + buffer: $50,000 - **Total need: $1,450,000** - Less existing assets: $200,000 - **Cover needed: $1,250,000** This is a simplified calculation. An insurance adviser will use more detailed modelling including inflation, investment returns on the lump sum, and your partner's earning capacity.

Income protection is widely considered one of the most valuable types of insurance, because your ability to earn an income is typically your biggest financial asset. **Consider this:** If you earn $80,000/year and work for 30 more years, your total future earnings are $2.4 million (before inflation). A serious illness or injury could wipe that out. **What it covers:** Typically 75% of your gross income if you can't work due to illness or injury. Payments continue until you return to work, reach a specified age (often 65), or the benefit period ends. **Key variables that affect cost:** - **Wait period:** How long before payments start (2 weeks to 3 months). Longer wait = lower premiums. - **Benefit period:** How long payments continue (2 years, 5 years, or to age 65). Longer benefit = higher premiums. - **Agreed value vs indemnity:** Agreed value locks in your income level at sign-up; indemnity recalculates at claim time. **Who needs it most:** - Primary income earners - Self-employed (no employer sick leave) - People with mortgages or dependents - Those without substantial savings to fall back on **Cost:** Typically $80-$200/month depending on age, income, occupation, and policy features. An insurance adviser can compare policies across multiple providers and recommend appropriate cover levels.

ACC (Accident Compensation Corporation) provides universal no-fault accident cover for everyone in New Zealand, but its coverage has significant gaps: **What ACC covers:** - Treatment costs for injuries caused by accidents - Weekly compensation at 80% of your income (capped) if you can't work due to accident - Lump sum payments for permanent impairment from accidents - Rehabilitation and support services - Funeral grants for accidental death **What ACC does NOT cover:** - Illness (cancer, heart disease, stroke, mental health conditions) - Gradual onset conditions (back pain not caused by a specific accident) - The gap between ACC's 80% compensation and your full income - Income above the ACC cap (approximately $139,000 as of 2026) - Death or disability from illness **Why this matters:** Statistics show that illness causes more claims than accidents. If you only rely on ACC, you have no income protection if you develop cancer, have a heart attack, or suffer a non-accident health condition. **Closing the gap:** Income protection insurance covers illness-related inability to work. Trauma insurance provides lump sums for serious diagnoses. Life insurance covers death from any cause. An insurance adviser can explain exactly where your ACC coverage ends and recommend personal insurance to fill those gaps.

New Zealand has a public health system that covers essential medical treatment, but private health insurance can provide significant benefits: **Benefits of private health insurance:** - **Shorter wait times:** Public system surgical wait times can be months or years for non-urgent procedures - **Choice of specialist:** You select your surgeon and hospital - **Wider treatment options:** Access to treatments not always funded publicly - **Non-Pharmac medicines:** Access to drugs not on the public funding list - **Comfort and convenience:** Private rooms, flexible scheduling **What it typically costs:** - Basic plans: $40-$80/month - Comprehensive plans: $100-$250+/month - Costs increase with age and are affected by pre-existing conditions **Who benefits most:** - People who want certainty about access to treatment - Those with family history of conditions requiring specialist treatment - People who can't afford long waits for non-urgent surgery - Self-employed people who need to return to work quickly **Important:** Get health insurance while you're young and healthy. Pre-existing conditions are typically excluded, and premiums increase with age. Dropping cover and re-joining later usually means new exclusions. An insurance adviser can compare policies across providers and find cover that matches your priorities and budget.

Most insurance advisers in New Zealand are paid through commissions from insurance companies. Understanding this helps you evaluate the advice you receive: **Commission structure:** - **Initial commission:** When you take out a new policy, the adviser receives an upfront commission (typically 100-200% of the first year's premium) - **Ongoing (trail) commission:** A smaller annual payment (typically 5-15% of the premium) for as long as you keep the policy **What this means for you:** - You don't pay the adviser directly — the premiums are the same whether you use an adviser or go direct - The adviser is incentivised to set up new policies (higher initial commission) and to keep you as a client (trail commission) **Potential conflicts:** An adviser might recommend a provider that pays higher commission rather than the one offering the best value for you. Good advisers are transparent about this. **Fee-for-service alternative:** Some advisers charge you a fee directly instead of (or in addition to) receiving commissions. This can remove the conflict of interest. **What to ask:** - "How are you paid for this advice?" - "Do you receive different commission rates from different providers?" - "Would you recommend the same products if all providers paid the same commission?" By law, advisers must disclose their remuneration. Don't hesitate to ask.

Trauma (or critical illness) insurance pays a tax-free lump sum if you're diagnosed with a specified serious medical condition. Common covered conditions include: - Cancer - Heart attack - Stroke - Coronary artery bypass surgery - Major organ transplant - Multiple sclerosis - Parkinson's disease **How it differs from income protection:** Income protection replaces ongoing income. Trauma insurance pays a one-off lump sum regardless of whether you return to work. **What the lump sum can be used for:** - Medical treatment costs not covered by public system or health insurance - Mortgage payments during recovery - Home modifications if needed - Travel for treatment - Taking time off work beyond what income protection covers - Lifestyle adjustments **Who should consider it:** - People with mortgages (can clear the debt if seriously ill) - Those with family history of cancer, heart disease, or stroke - Primary caregivers whose illness would require paid care for dependents - Anyone without significant liquid savings **Typical cover:** $100,000-$500,000 lump sum **Typical cost:** $50-$200/month depending on age, cover amount, and health An insurance adviser can assess whether trauma cover fills a genuine gap in your existing protection.

Yes, but with limitations. Pre-existing conditions affect insurance in several ways: **Common approaches by insurers:** - **Exclusion:** The insurer covers you for everything except the pre-existing condition - **Loading:** They charge a higher premium to account for the increased risk - **Deferral:** They'll cover the condition after a waiting period (e.g., 2-3 years without treatment) - **Decline:** In severe cases, cover may be declined entirely **What counts as pre-existing:** - Any condition you've been diagnosed with - Conditions you've had symptoms of, even if undiagnosed - Conditions you've been treated for or taken medication for **Tips for getting cover:** - Be completely honest on your application — non-disclosure can void your policy at claim time - Apply while your condition is well-managed - Get cover for other risks even if one condition is excluded - Use an insurance adviser who works with multiple providers — different insurers have different appetites for risk **Important:** Never let a pre-existing condition stop you from seeking cover entirely. Having insurance with one exclusion is far better than having no insurance at all. An experienced insurance adviser will know which providers are more likely to offer favourable terms for your specific condition.

Your insurance needs change as your life changes. A good rule of thumb: **Review annually:** A quick check that your cover levels still make sense given your current situation. **Review immediately after major life events:** - Getting married or entering a de facto relationship - Having children - Buying a home or increasing your mortgage - Changing jobs or becoming self-employed - Receiving an inheritance - Getting divorced or separating - Children leaving home - Paying off your mortgage - Approaching retirement **What to check in a review:** - Are your cover levels still appropriate? (Too much or too little?) - Are you getting competitive premiums? (Market rates change) - Has your health or occupation changed? (Might affect options) - Are there new products that better suit your needs? - Are you paying for cover you no longer need? **Common mistake:** Setting up insurance and never reviewing it. People often remain over-insured (paying for cover they no longer need as their mortgage shrinks and savings grow) or under-insured (not increasing cover as their income and responsibilities grow). A good insurance adviser will proactively contact you for annual reviews.

This is an important distinction that affects how much you receive at claim time: **Agreed value:** - Your income level is agreed and locked in when you take out the policy - At claim time, you receive 75% of the agreed income regardless of your actual income at that point - More expensive but provides certainty - Not affected if your income drops before a claim **Indemnity value:** - Your benefit is calculated based on your actual income at the time of claim (or averaged over the preceding 12 months) - Lower premiums than agreed value - If your income has dropped since you took out the policy, your benefit will be lower - If your income has increased, you still receive 75% of your actual income (up to the policy maximum) **Which to choose:** - **Agreed value suits:** Self-employed people with variable income, those concerned about future income certainty, people in commission-based roles - **Indemnity suits:** People with stable, predictable income from employment, those wanting lower premiums **Important note:** Some insurers have reduced their appetite for agreed value policies in recent years, so availability may vary. An insurance adviser can recommend the right structure based on your income pattern and risk profile.