Life insurance when you have debt

When someone dies in New Zealand, their assets and liabilities form an estate. The executor gathers what there is, pays what is owed, and distributes the remainder under the will. Debts come first. That single fact is what turns a mortgage, a car loan and three credit cards into an inheritance problem, because the assets used to pay them are often the same assets the family needed — usually the house.

The comfort people reach for is that debt dies with you. It is half true. Unsecured creditors of an insolvent estate frequently go unpaid, and they cannot pursue your children for the balance. But that only helps if there is nothing to take. If there is a house, there is something to take, and if someone guaranteed the borrowing or borrowed jointly with you, they are liable in their own right regardless of what your estate can pay.

That is the shape of the exposure, and it is why debt is the clearest reason to hold life cover. There is no judgement involved and no forecasting. You owe a number, and if you die that number has to come from somewhere.

Sizing cover to debt

1. 1List every debt with its current balance, not its original amount.
2. 2Mark which are joint, which are guaranteed by someone else, and which are secured.
3. 3Add the joint and guaranteed debts first — those are the ones with a real person exposed.
4. 4Add the secured debt on any asset your family needs to keep, chiefly the house.
5. 5Ignore the student loan. It is written off.
6. 6Insure the total, and review it annually as balances fall.

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

• Whether your mortgage is in joint names, which makes the survivor liable for the whole balance.
• Whether anyone has guaranteed borrowing for you, including a parent on a first home loan.
• Whether a business facility carries a personal guarantee you signed years ago and have not reviewed.
• Whether cover is owned or nominated so it pays your family rather than going through the estate to creditors.
• Whether a mortgage top-up or consolidation has quietly increased the balance since you set the sum insured.
• Whether you are relying on cover arranged at settlement that pays the lender rather than your household.

Every New Zealand insurer writes cover sized to debt 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.

• Producing a defensible sum insured from a debt schedule, which underwriters accept easily.
• Identifying guarantees the client has forgotten, which is a routine finding at a first review.
• Structuring ownership so the payout reaches family directly rather than being absorbed by the estate.
• Setting a review cycle so cover falls as balances fall, rather than being paid for indefinitely.

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.