Life insurance for single parents

Raising children on your own removes the redundancy that other households take for granted. In a two-parent home, a serious illness means one income continues. In yours, an illness that stops you working stops everything, and the mortgage or rent keeps arriving. That is why the standard advice — buy a big life sum insured — is the wrong starting point here. Death is not the most likely disruption; disability is.

The second difference is duration. A payout on a two-parent household buys the surviving parent time. A payout on yours has to fund a whole childhood: housing, schooling, food and someone to do the caring, for however many years remain until your youngest is independent. That is a larger number, and it needs to be arrived at deliberately rather than borrowed from a rule of thumb.

The third difference is administrative. If you die, the person raising your children is not automatically the person handling your money, and neither role assigns itself. Both need to be dealt with while you are here to decide.

Where money is limited, cover should be bought in the order of what is most likely to happen and most damaging if it does.

1. 1Income protection or mortgage repayment cover first. It handles the scenario that is far more likely than death, and it keeps the roof on.
2. 2Enough life cover to clear the housing debt. That single step removes the largest fixed cost from the household.
3. 3Life cover sized to the years of dependency after that, added in stages as you can afford it.
4. 4Trauma cover if there is room. For a sole caregiver, a lump sum that buys six months of help is worth a great deal.
5. 5A will, a testamentary guardian and the beneficiary or trust arrangement that makes the money usable.

Who holds the money for your children

If a payout goes to your estate and your children are minors, it is held for them — typically by your executor or trustee — and applied for their benefit until they reach the age set by your will or by law. Left unplanned, that can mean money released in a lump at 18 to someone with no experience of it, or held by a person you would not have chosen.

The alternative is a simple trust arrangement in your will, or trust ownership of the policy, directing how and when the money is used and by whom. It is not expensive to set up compared with what it controls, and it is the piece single parents most often leave undone.

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

• Whether income protection is agreed value or indemnity — if your income varies, this decides what you can actually claim.
• Whether the waiting period matches your savings. A thirteen-week wait with four weeks of savings is a gap you will feel.
• Whether Working for Families or other entitlements would change on a claim, and whether an insurance benefit offsets them.
• Whether the other parent has cover, and whether any separation agreement requires it.
• Whether your employer provides any life or income cover, and whether it ends if you leave.
• Whether your will is current, names a guardian, and matches your policy nominations.

Every New Zealand insurer writes cover for a one-income household 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.

• Setting a realistic budget and then allocating it in priority order, rather than selling a package.
• Sizing life cover against years of dependency, with the childcare and reduced-earnings assumptions written down.
• Getting the ownership and trust arrangements right so the money is usable by the people raising your children.
• Checking whether existing cover taken out during a former relationship still points at the right people.

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.