Using a life insurance calculator

A life insurance calculator is a needs analysis with the judgement taken out. You feed it your mortgage, your income, your dependants and your existing cover, and it returns a sum insured. The arithmetic is not complicated and there is nothing dishonest about it — it is simply a subtraction dressed up in a web form.

What makes calculators useful is that they force you to look up numbers you have been avoiding: the actual mortgage balance, the actual KiwiSaver figure, the actual cost of childcare. Most people discover the exercise is more informative than the answer.

What makes them dangerous is the false precision. A number like $847,000 looks like it came from somewhere authoritative. It came from your own guesses about how long your partner would take to return to work, multiplied out.

Have these to hand and the calculation takes ten minutes. Guess at them and you will get an answer that is confidently wrong.

1. 1Your current mortgage balance and the balance of every other debt you would want cleared. Not the original loan — what you owe today.
2. 2Your after-tax household income, split by person, and the share of it the household actually spends.
3. 3The age of your youngest dependant, which sets how many years of income you are replacing.
4. 4Everything you already hold: employer group life, older personal policies, KiwiSaver balances and accessible savings.

What to do with the answer

Run the calculation twice. Once on the assumption that your survivor returns to full-time work within a year and the children are fine. Once on the assumption that they cannot work for three years and everything costs more than expected. The two answers will be a long way apart, and the honest number is usually nearer the second one than people want it to be.

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

• Whether the calculator counts employer cover at full value. It usually should not — group cover ends with the job.
• Whether it assumes an investment return on the lump sum. Some do, quietly, and that shrinks the recommended cover.
• Whether it accounts for inflation over an 18-year income replacement period. Many do not.
• Whether it asks about ACC. If it does not, it is treating illness and accident as the same risk, and they are not.
• Whether the site running it is an insurer. A calculator built by a company that sells one product range is not neutral.
• Whether the number it produces is affordable as a premium at your age — the calculator does not know or care.

Every New Zealand insurer writes how much life insurance do you need 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 starts from the same arithmetic but adjusts it for the things a form cannot ask — how secure your job is, whether your partner would really go back to work, what your parents’ health means for your future caring load.
• They know which insurers’ financial underwriting will support the number and which will cut it back.
• They can price the number under both premium structures so the affordability question is answered before you apply, not after.
• They are required to document why the recommended sum insured suits your circumstances, which a calculator never has to do.

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.