How to compare mortgage protection cover

Almost every New Zealand mortgage comes with an insurance conversation attached, and the phrase used is “mortgage protection”. It is not a defined product but a label applied to several different contracts, so the first job is finding out which one is in front of you.

The three common shapes are a monthly disability benefit sized to your repayments, which is income protection with a different name; a lump sum life or trauma benefit that reduces in line with the loan balance; and a redundancy or involuntary unemployment benefit, usually short and heavily conditioned. Some products combine two of the three.

They are not interchangeable. A monthly benefit keeps the repayments going while you cannot work. A lump sum clears the debt if you die or are permanently disabled. A redundancy benefit covers a few months of payments if you lose your job. A household that thinks it has bought the third and has actually bought the first is in for a bad surprise.

The question that usually settles it

Reducing cover is cheaper because it shrinks. But the reason you insure a mortgage is not the mortgage — it is the household that has to keep living in the house. Level cover sized to the original loan leaves a growing surplus as the balance falls, and that surplus pays for the years afterwards.

If the budget will only stretch to reducing cover, take it. Cover in force beats no cover. But make the choice deliberately rather than accepting the cheaper number because it was the one offered first.

These are the details that decide whether the cover does what you expected. Read them before you compare on price.

• Whether the cover is portable if you refinance with another lender, or whether it ends.
• Whether the sum insured or benefit is tied to the current loan balance and adjusts automatically.
• Whether the redundancy component excludes self-employment, fixed-term contracts and probationary periods.
• The waiting period on any redundancy benefit, and how long you must have been employed to qualify.
• Whether a monthly benefit offsets ACC, other insurance and any employer payment.
• Whether the policy is underwritten at application or assessed at claim, which decides when you learn about exclusions.

Every New Zealand insurer writes mortgage protection cover to its own wording, and the words are where the money is. Two policies that look identical on price can pay very differently when it matters. Closing that gap is the entire job of an adviser.

• An adviser can tell you which of the three products you are actually being offered, which the sales conversation often does not make clear.
• An adviser prices level life cover against reducing cover so you can see what the surplus costs.
• Where cover is arranged by a lender and tied to the loan, an adviser can arrange portable cover you own.
• Redundancy cover is narrow. An adviser will tell you when it is not worth buying rather than selling it to you.
• An adviser structures ownership and beneficiary nominations so the money reaches the household, not just the bank.

There are three ways to buy life cover in New Zealand, and they are not equivalent. You can buy direct from one insurer, which means you see one product range and one underwriting appetite. You can buy through your bank, which usually means a single insurer’s product sold under the bank’s brand, often with narrower definitions. Or you can go through an adviser, who quotes several insurers at once and is required to put your interests first.

The premium you pay is the same either way. Insurers build adviser commission into their pricing whether or not an adviser is involved, so going direct does not get you a discount — it just removes the person whose job is to argue your corner at application and at claim time.

• An adviser can see which insurer is currently taking your health history on standard terms, and which one will load or exclude it.
• An adviser can structure cover across two insurers if that produces a better outcome than putting everything with one.
• An adviser handles the underwriting back-and-forth, and is the person who chases the claim when a family is least able to.
• An adviser has to document why the recommendation suits you, which is a written record you can hold them to.

We are a referral service, not an insurer. We do not quote premiums and we do not sell policies. What we do is put you in front of one licensed New Zealand adviser who can compare the market properly.

1. 1

   You tell us what you are looking at

   The form takes about a minute. Nobody asks for your medical history on a web form — that conversation happens with the adviser, properly, and only once you have decided to proceed.

2. 2

   An adviser calls you

   A licensed New Zealand adviser talks through your situation: who depends on you, what you owe, what you already have in place, and what you are actually worried about.

3. 3

   They compare the market

   The adviser quotes across the major insurers, checks which of them will take your health history on the best terms, and puts the options side by side in writing.

4. 4

   You decide, in your own time

   There is no obligation and no cost to you. If the answer is that you already have enough cover, a good adviser will tell you that.