In New Zealand, many people spend more on their phone bills and streaming subscriptions than they do on protecting their income and health. This article delves into the crucial debate about personal insurance, offering insights, practical tips, and real-world examples to help you make informed decisions about securing your future well-being.
The Cost of Not Being Covered: A New Zealand Perspective
Imagine this: you’re a young professional, juggling a mortgage, car payments, and the usual social life expenses. You feel invincible. Personal insurance seems like an unnecessary drain on your finances. But what happens if you’re suddenly diagnosed with a serious illness or suffer an accident that leaves you unable to work? In New Zealand, ACC covers accidents, but illnesses and many other disabilities – that prevent you from working – often require a private insurance solution.
Consider Sarah, a 35-year-old teacher. She thought she was healthy and didn’t see the need for income protection insurance. Then, she was diagnosed with multiple sclerosis. Suddenly, she had to reduce her work hours, and eventually, stop working altogether. Without income protection, she faced severe financial strain. This is a common scenario, highlighting the importance of considering “what if” scenarios despite feeling healthy now. Many New Zealanders incorrectly assume the public health system will cover everything, neglecting the financial impact of long-term illness or disability.
Understanding the Core Types of Personal Insurance in NZ
The world of personal insurance can seem complex, but it’s essentially about protecting yourself and your family from financial hardship due to unforeseen circumstances. The main types of personal insurance available in New Zealand are:
Life Insurance: Pays a lump sum to your beneficiaries upon your death. This can help cover mortgage repayments, living expenses for your family, and future education costs for your children.
Income Protection Insurance: Replaces a portion of your income if you’re unable to work due to illness or injury. This is designed to help you meet your ongoing financial obligations while you recover. There are varying benefit periods and waiting periods, which greatly impact the premium.
Trauma Insurance: Pays a lump sum if you’re diagnosed with a specified medical condition, such as cancer, heart attack, or stroke. This money can be used for medical expenses, debt repayment, or to provide financial security during recovery. Understanding what specific conditions are covered under a trauma insurance policy is crucial because the coverage varies between insurers.
Health Insurance: Covers or contributes towards the cost of private medical treatment, including specialist consultations, surgery, and diagnostic tests. Having health insurance can significantly reduce waiting times compared to the public health system and provide access to a wider range of treatment options. It’s essential to note, however, that they typically do not cover existing or ongoing medical conditions for the first few years.
Total and Permanent Disability (TPD) Insurance: Pays a lump sum if you become totally and permanently disabled and unable to work again. This can provide financial security for the rest of your life and help cover ongoing care costs. It’s often bundled with life insurance policies.
Assessing Your Needs: A Personalized Approach
The amount and type of insurance you need will depend on your individual circumstances, including your age, income, debts, family situation, and lifestyle. There is no one-size-fits-all solution. Consider these factors:
Income: How much would you need to replace if you couldn’t work? Income protection is especially vital for those with significant financial commitments.
Debt: How much debt do you have, including your mortgage, car loans, and credit cards? Life insurance, trauma insurance, and TPD insurance can help your family pay off these debts if something happens to you.
Dependents: Do you have children or other dependents who rely on your income? Life insurance and income protection are crucial to protecting their future.
Health: Do you have any pre-existing health conditions? Health insurance is often necessary to jump the queue to get faster and usually better specialist and treatment options, particularly if there is a family history of ill health.
Lifestyle: Do you participate in any high-risk activities that could increase your risk of injury or illness? You may need higher levels of cover.
A crucial step is creating a budget and reviewing your financial liabilities. By understanding your monthly expenditure and how much it would cost to maintain your current lifestyle should you become ill or injured, you can determine the level of insurance protection that you may need.
Navigating the New Zealand Insurance Market: Practical Tips
Finding the right insurance policy in New Zealand requires research, comparison, and careful consideration. Here are some tips to help you navigate the market:
Get Multiple Quotes: Don’t settle for the first quote you receive. Compare policies from different insurers to ensure you’re getting the best coverage at the best price. Sites like Money Compare can assist with comparing insurance quotes.
Read the Fine Print: Carefully review the policy wording to understand what’s covered, what’s excluded, and any waiting periods or limitations. Pay close attention to definitions of key terms like “disability” or “trauma.”
Consider Using a Broker: An insurance broker can provide expert advice and help you find the right policy for your needs and budget. They can also advocate for you if you need to make a claim. Be aware though that you are still responsible for doing your own research and asking the right questions, to ensure you are making an informed decision.
Disclose Everything: It’s crucial to be honest and upfront about your medical history and lifestyle when applying for insurance. Failure to disclose relevant information can lead to your claim being declined.
Understand Waiting Periods: Many insurance policies have waiting periods before certain benefits become available. For example, health insurance policies may have a waiting period for pre-existing conditions.
Review Your Policy Regularly: Your insurance needs may change over time as your life circumstances evolve. Review your policy annually or when you experience a significant life event, such as getting married, having children, or buying a house. It won’t hurt to check if improvements have been made and can be applied to your policy.
Check the Insurer’s Claim Payment History: Check online reviews of insurers. Some companies are notorious for making it as hard as possible for you to claim. Do your research and ask lots of questions.
Cost vs. Value: Finding the Right Balance
One of the biggest barriers to taking out personal insurance is the perceived cost. However, it’s important to consider the cost of not being insured. The financial consequences of a serious illness or injury can be devastating, potentially leading to debt, loss of assets, and significant stress for you and your family. In reality, many of the people who complain about how expensive insurance is, are those same people who don’t think twice about buying the latest gadgets or upgrading their cars. The cost of new smart phones alone are often many multiples higher than the cost of insurance, but are quickly considered ‘essential’ when it isn’t really necessary. It’s important to weigh up what is really essential, and what can be considered ‘nice-to-have’.
To find the right balance between cost and value, consider these strategies:
Adjust Benefit Levels: Lowering your level of cover or increasing your excess can reduce your premiums. But be sure these changes still appropriately cover your financial liabilities.
Choose a Longer Waiting Period: If you have savings you can draw on, opting for a longer waiting period for income protection can lower your premiums. However, this strategy is best only for those who have a robust safety net.
Bundle Policies: Some insurers offer discounts if you bundle multiple insurance policies together.
Pay Annually: Paying your premiums annually can sometimes be cheaper than paying monthly.
Focus on Core Coverage: Prioritize the types of insurance that are most important to you and cut back on optional extras.
Case Studies: Real-Life Examples of Insurance Protection
These examples of real-life cases highlight the importance of personal insurance:
Michael, 45, Business Owner: Michael had income protection insurance when he was diagnosed with bowel cancer. His insurance policy covered a portion of his income while he underwent treatment, allowing him to focus on his health and recovery without worrying about financial strain.
Emily, 28, Mother of Two: Emily had life insurance when she unexpectedly passed away from a previously undiagnosed heart condition. The life insurance payout helped her husband pay off the mortgage and provide for their children’s future.
David, 52, Construction Worker: David suffered a serious back injury on the job. He was no longer able to perform physically demanding roles. His previous Total and Permanent Disability (TPD) insurance paid him a lump sum that allowed him to start his own small business and generate a living from a non-physical role.
Karen, 60, Retired Teacher: Karen’s health insurance allowed her to swiftly receive specialist care for a hip replacement. This meant getting the treatment done sooner and avoiding a prolonged time on a public register waiting list.
The Specifics of Income Protection in NZ
A type of insurance that deserves extra attention is income protection. Many people don’t realise that ACC only covers accidents, but any illness that prevents you from working will not be covered. The features of income protection policies in New Zealand can vary, and understanding these details is essential for making an informed decision:
Benefit Period: This is the length of time you will receive payments if you’re unable to work. Benefit periods can range from a few years to until age 65. A longer benefit period provides greater security.
Waiting Period: This is the period of time you must be unable to work before your benefits begin. Waiting periods can range from a few weeks to several months. A shorter waiting period means you’ll receive payments sooner, but your premiums will be higher.
Agreed Value vs. Indemnity Value: Agreed value policies guarantee the amount of income you’ll receive if you make a claim, based on your current income. Indemnity value policies, on the other hand, will assess proof of your income if you make a claim and payout a percentage based on that income at the time. An agreed value policy may be preferable for consistency.
Partial Disability: Some policies will pay a benefit if you’re only able to work part-time due to illness or injury.
Own Occupation vs. Any Occupation: “Own occupation” policies will pay a benefit if you’re unable to perform your specific job, while “any occupation” policies will only pay if you’re unable to perform any job. “Own occupation” policies are generally more expensive but provide greater protection.
Inflation Protection: Some policies offer inflation protection, which increases your benefit amount over time to account for inflation.
Worldwide Cover: Check whether your policy provides cover if you’re traveling or living overseas.
Exclusions: Be aware of any exclusions, such as pre-existing conditions or certain high-risk activities.
The Role of Government and Public Healthcare
New Zealand has a public healthcare system that provides access to a range of medical services. ACC covers accidental injuries that occur in New Zealand, regardless of fault. However, the public health system has its limitations, including waiting lists for specialist appointments and elective surgery. Private health insurance can complement the public system by providing faster access to treatment and a wider range of options. ACC provides no income replacement and no financial assistance for conditions which didn’t occur from an accident.
While Kiwis are often thankful that accidents will be covered by ACC, it’s worth recognising that many conditions affecting people are illness-based. Consider mental health, cancer, heart disease, arthritis, asthma, and many others that aren’t caused by specific accidents.
Making a Claim: What to Expect
If you need to make a claim on your personal insurance policy, here’s what you can expect:
Contact Your Insurer: As soon as possible, contact your insurer to notify them of your situation and to obtain a claim form.
Complete the Claim Form: Fill out the claim form accurately and provide all the required documentation, such as medical reports, income statements, and other supporting evidence.
Provide Supporting Documentation: Be prepared to provide any additional information requested by the insurer.
Cooperate with the Insurer: Cooperate fully with the insurer’s investigation of your claim.
Seek Assistance if Needed: If you’re having difficulty with the claims process, consider seeking assistance from a financial advisor, insurance broker, or consumer advocacy group.
Review your insurer’s claim history online: Check online reviews of insurers as some companies are notorious for making it as hard as possible for you to claim.
Many complaints regarding payout of particular policies are often due to the insured individual not realising what their insurance actually covered, and what it didn’t. It is crucial to ask lots of “what if” scenarios before commencing the policy, so you have a better understanding of how your policy may realistically play out should you need to claim on it.
Common Misconceptions About Personal Insurance
There are several common misconceptions about personal insurance that can prevent people from taking out adequate cover:
“I’m young and healthy, so I don’t need it.” Illness and accidents can strike at any age.
“Insurance is too expensive.” As previously mentioned, it’s important to weigh the cost of insurance against the potential financial consequences of not being insured.
“The government will take care of me.” While New Zealand has a public health system, it has its limitations. Furthermore, ACC covers accidents, not illnesses.
“I’m covered by my employer’s insurance.” Employer-provided insurance may not provide adequate cover for your individual needs. Always check with your employer on what events are covered under this insurance.
Tax Implications of Personal Insurance in New Zealand
The tax treatment of personal insurance premiums and benefits varies depending on the type of insurance and your individual circumstances.
Life Insurance: Premiums are generally not tax-deductible, and benefits are generally not taxable.
Income Protection Insurance: Premiums may be tax-deductible if you’re self-employed or contracting (check with a tax advisor), and benefits are generally taxable.
Health Insurance: You may be eligible for a tax credit on your health insurance premiums.
Trauma and TPD Insurance: Premiums are generally not tax-deductible, and benefits are generally not taxable.
Consult with a tax advisor to understand the specific tax implications of your insurance policies.
Future Trends in the NZ Personal Insurance Market
The personal insurance market in New Zealand is constantly evolving. Some emerging trends include:
Increased Focus on Wellness: Insurers are increasingly offering incentives for policyholders to adopt healthy lifestyles, such as discounts on gym memberships or wearable fitness trackers.
Greater Use of Technology: Technology is being used to streamline the application and claims process. This can include online applications, digital claims submission, and automated underwriting systems.
Personalized Insurance Products: Insurers are developing more personalized insurance products that are tailored to individual needs and circumstances.
Focus on Mental Health: More insurance providers are beginning to include provisions for mental health care benefits.
Increased Transparency: There is a growing demand for greater transparency and simplicity in insurance policies. Consumers want to understand exactly what they’re covered for and what they’re not.
FAQ Section
What is the best type of personal insurance to have?
The “best” type of insurance depends entirely on your individual circumstances. Life insurance is generally a good idea for anyone with dependents or debts. Income protection is essential for those who rely on their income to meet their financial obligations. Health insurance can provide faster access to medical treatment. Trauma insurance can provide financial security during a serious illness.
How much insurance do I need?
The amount of insurance you need depends on your income, debts, family situation, and lifestyle. A financial advisor can help you assess your needs and determine the appropriate level of cover.
Is personal insurance worth the cost?
The cost of personal insurance should be weighed against the potential financial consequences of not being insured. The peace of mind and financial security that insurance provides can be invaluable.
What happens if I can’t afford my premiums?
If you’re struggling to afford your premiums, contact your insurer to discuss your options. They may be able to offer a payment plan or reduce your level of cover. If you cancel your policy, be aware that you may not be able to reinstate it at a later date, or you may have to pay higher premiums.
What if my claim is declined?
If your claim is declined, ask your insurer for a written explanation and appeal the decision if you believe it was unjustified. You can also seek assistance from a financial advisor, insurance broker, or consumer advocacy group. You can also lodge a complaint with the Insurance & Financial Services Ombudsman Scheme (IFSO).
References
Insurance & Financial Services Ombudsman Scheme (IFSO)
Financial Markets Authority (FMA)
Money Compare NZ
Don’t wait until it’s too late. Your health and financial well-being are worth more than your phone bill. Take control of your future today. Start by getting a quote from a reputable insurance provider. Research different policies online, and consider speaking with a financial advisor. Make the informed decision to protect yourself and your loved ones. It’s an investment in your peace of mind and a brighter future. The future you will thank you for planning appropriately for unexpected events.
