Life insurance for first home buyers

The mortgage is the event that turns life insurance from a theoretical good idea into an arithmetic problem. Before the loan, a household without dependants can usually absorb the loss of one income by moving, downsizing or leaning on family. After it, there is a fixed payment due on the same day every month for the next twenty-five to thirty years, and the bank has security over the roof.

The cover that answers that problem is not complicated. Enough life cover that the loan can be cleared or reduced to a level the survivor can service on one income. Enough income protection that a long illness does not force a sale. Usually some trauma cover, because the most common threat to a young household’s finances is not death — it is a serious diagnosis that stops one of you working for a year while the mortgage keeps running.

What is complicated is the sales environment. Somewhere between conditional approval and settlement, a bank or mortgage adviser will raise insurance. That conversation happens when you are exhausted, on a deadline, and inclined to sign whatever gets you the keys. It is the single worst moment in the whole process to make a twenty-year decision.

The sequence matters more than the product choice, because the sequence is what protects your options. Underwriting takes time and can come back with terms you did not expect.

1. 1Get pre-approval, then start the insurance conversation — before you find the house, if you can.
2. 2Complete the application and let the insurer underwrite you while you are still house-hunting. Underwriting is free and does not commit you to anything.
3. 3If an insurer comes back with a loading, an exclusion or a request for GP notes, you now have weeks to shop it rather than days.
4. 4Set the start date to align with settlement, so you are not paying premiums on a mortgage you do not yet have.
5. 5Once you are unconditional, confirm cover is in force before settlement day. Cover in force means the insurer has accepted, not that you have submitted a form.

Decreasing cover or level cover

Decreasing cover tracks down alongside the loan balance, so it is cheap and it always matches the debt. The problem is that clearing the mortgage is not the same as replacing a parent. A family with a mortgage-free house and no income has solved one problem and kept the other.

The usual answer for a household with children, or planning them, is level cover sized to the mortgage plus a few years of income, held long enough to matter. If money is tight at the start, take a smaller level sum insured rather than a larger decreasing one — you can add to level cover later, and the health you have at 28 is the best you will ever have to buy with.

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

• Whether the policy you are offered at settlement is life cover on you, or a payment-protection product that only covers the repayments for a set period.
• Who owns the policy. If the bank is the owner or the loss payee, the money goes to the loan and not to your family’s choice.
• Joint policies pay once. On a two-borrower loan, a single joint policy leaves the survivor uninsured at exactly the moment they need cover most.
• Low-deposit lending sometimes comes with a lender’s mortgage insurance premium. That protects the bank, not you, and is not life insurance.
• Whether the cover has a special events benefit letting you increase it without new medical evidence when you have a child or increase the loan.
• Whether income protection has been sized against the mortgage payment alone or against your actual income. The first is usually not enough.

Every New Zealand insurer writes mortgage-related 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.

• Underwriting appetite differs sharply between insurers on the health histories young buyers commonly have — mental health treatment, sports injuries, family history.
• An adviser can time the application so cover starts at settlement rather than months earlier.
• Splitting cover between two lives and two structures, part level and part decreasing, is where most of the savings on a first-home policy actually sit.
• If the bank has already issued a policy, an adviser can compare it side by side and tell you honestly if it is fine — sometimes it is.

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.