Level term life insurance: is it worth it?

A level premium is calculated once, at the point you take the policy out, by averaging the cost of insuring you across the whole period to your chosen expiry age. Instead of a premium that climbs every birthday, you pay a flat amount — higher than a stepped premium would be at 35, far lower than one would be at 60.

The effect is that you pre-fund your own ageing. Level cover is expensive in the years when you are least likely to claim and cheap in the years when you are most likely to, which is the reverse of stepped and is why level policies are far less likely to be cancelled at exactly the wrong moment.

The catch is that most people never see the benefit, because they cancel before the crossover. If there is a real chance you will drop the cover within a decade, the higher early cost of level is money spent for nothing.

The arithmetic is not subtle, but it is sensitive to one assumption: how fast you expect stepped premiums to rise. Illustrations that assume 3% a year flatter stepped cover. Real New Zealand stepped increases commonly run higher, and every extra percentage point pulls the crossover forward.

Ask your adviser to model your own numbers twice — once at 3% and once at 8% — and to show cumulative cost, not just the annual figure. The cumulative line is the one that answers the question.

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

• The expiry age you choose. Level to 65 is cheaper than level to 80, but the cover stops at 65.
• What happens at expiry — some policies convert to stepped rather than simply ending, at a price that can be startling.
• Whether the insurer’s wording lets it reprice a class of level policies, and on what notice.
• Whether indexation is on. CPI increases on a level policy are usually priced at your attained age, which quietly erodes the fixed premium.
• Whether you can move from level back to stepped if affordability changes, and whether that requires new underwriting.

Every New Zealand insurer writes life insurance in new zealand 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.

• Expiry ages available differ by insurer — not everyone offers level to 80.
• The wording on non-guaranteed rates varies, and so does the notice period an insurer must give before repricing.
• Some insurers let you take part of your cover level and part stepped in a single policy, which is often the right structure for a household with both a mortgage and young children.
• Where the crossover lands depends on the insurer’s stepped rate table, not just on your age — so the same decision can go different ways with different insurers.

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.