Whole of life insurance explained

A whole of life policy insures you for your whole life rather than to an expiry age, so provided the premiums are paid the insurer will pay out — the only uncertainty is when. To fund that certainty, part of every premium goes into a reserve that builds a surrender value, and on traditional with-profits policies that reserve grows by annual bonuses the insurer declares.

That structure has two consequences. The premium buys much less cover than the same money spent on term life, because you are pre-funding a payment that will definitely happen. And the policy becomes an asset with a cash value, which is why people are tempted to cash it in when money is tight.

Whole of life was the mainstream New Zealand life product for much of the twentieth century and has largely been displaced by term cover and unit-linked savings. What remains is a long tail of old policies, often small, often with guarantees written in language nobody would use today, sitting in drawers.

Old whole of life policies are frequently worth more than they look, and the value is rarely in the sum insured printed on the front page. Work through this before you make any decision.

1. 1Ask the insurer in writing for the current sum insured, accrued bonuses, surrender value and paid-up value.
2. 2Ask whether the premium rate is guaranteed for the life of the policy, and whether the policy has a premium-paying end date.
3. 3Ask what guaranteed insurability or conversion options are attached, and until what age they can be used.
4. 4Check who owns the policy and who the nominated beneficiary is. Old policies frequently name people who have died or relationships that have ended.
5. 5Check whether the policy is assigned to a bank as security for a loan that was repaid decades ago.
6. 6Only then compare the cost of keeping it against what the same premium would buy as term cover today.

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

• How much of your premium buys cover and how much goes to the savings element. The split is rarely obvious.
• Whether bonuses are guaranteed once declared, or reversionary and dependent on the insurer’s performance.
• Whether there is a premium-paying term after which the policy continues without further premiums.
• The surrender value in the early years, which on almost any savings-linked contract is very low.
• Whether the sum insured is indexed. An unindexed 1985 sum insured has lost most of its purchasing power.
• Fees and charges deducted from the reserve, which can be material on older contracts.

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.

• Very few insurers write whole of life in New Zealand now, so any comparison is really between keeping an old policy and replacing it with term cover.
• An adviser can request the full policy schedule and bonus history from the insurer and read the guarantees before anything is cancelled.
• Where the old policy has a guaranteed insurability option, exercising it can be a way to add cover without new medical evidence.
• If your health has changed since the policy was written, the old cover may be irreplaceable at any price — that alone can settle the question.

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.