Term life insurance explained

Term life insurance is the plainest product in the personal risk suite. You insure an amount, you pay a premium, and if you die while the policy is in force the insurer pays that amount. There is no investment account behind it and no surrender value, which is exactly why it is cheap relative to the sum insured.

The word “term” imports an assumption from overseas markets that does not quite hold here. In the United States and the United Kingdom, term life is usually a fixed contract — 20 years, say, at a fixed price, after which it ends. In New Zealand the dominant structure is yearly renewable cover running to a maximum age, where the insurer guarantees to keep renewing regardless of health changes, but the premium is recalculated each year.

That distinction matters when you compare a New Zealand policy against advice written for another market. Your cover does not fall off a cliff at the end of a term, but your premium does keep climbing unless you have chosen level.

Because the contract runs to a maximum age, the real decision is how long you need the cover to work, and therefore which premium structure suits.

1. 1Identify the liability. A 25-year mortgage, children who are four and seven, a business loan with a personal guarantee.
2. 2Work out when that liability ends. Mortgage paid at 62. Youngest child independent at 22, when you are 55.
3. 3Take the later of those dates. That is the period the cover has to survive.
4. 4Decide the premium structure against that date. Cover needed for ten years or less is usually cheaper stepped; cover needed for twenty years or more usually favours level.
5. 5Review it every few years. Terms shorten as the mortgage comes down, and cover you no longer need is money you can stop spending.

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

• Whether the policy is genuinely renewable regardless of your health, or whether the insurer can decline renewal.
• The maximum expiry age, which differs by insurer and by premium structure.
• Whether the terminal illness benefit is included and what life expectancy it requires.
• Whether you can convert stepped cover to level later without new medical evidence, and until what age.
• Indexation: whether your sum insured and premium rise with CPI automatically unless you opt out.

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.

• Maximum expiry ages differ between insurers, which matters if you expect to hold cover past 70.
• Conversion options — the right to move from stepped to level without re-underwriting — are not universal and often have an age cut-off.
• Some insurers apply a policy fee per policy rather than per life, so structuring cover across two lives changes the total cost.
• Non-guaranteed rate wording varies; the practical protection you get from “level” depends on the exact clause.

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.