Mortgage protection and repayment cover

The phrase is used loosely, and that is the first source of confusion. Three quite different things are sold under it in New Zealand.

They solve different problems and they are not substitutes. Life cover clears the debt if you die. Repayment cover keeps the loan current while you are alive but not earning. Redundancy cover, where it exists at all, does a small and tightly conditioned job for a few months.

A household with a mortgage generally needs the first two. Whether they should be bought as mortgage-branded products or as ordinary life cover and income protection is the real question, and the answer is usually the latter.

Mortgage protection is overwhelmingly sold at the point of the loan, which is the moment you are least able to evaluate it. You have just committed to the largest debt of your life, you are signing a stack of documents, and someone offers cover that sounds like a condition of the lending. It is not.

• Bank-branded cover is generally underwritten by a single insurer, so you see one product and one underwriting appetite.
• Definitions in bank-sold products can be narrower — shorter benefit periods, tighter disability definitions, fewer options.
• Some policies are assigned to the bank, meaning the benefit reduces the loan rather than being paid to you or your family.
• The cover is often tied to the specific loan, so refinancing elsewhere can end it.
• Nobody is obliged to buy insurance from a lender in order to obtain a home loan.

The practical order most advisers work in is the same regardless of what the cover is called.

1. 1Income protection first, sized to your income rather than to the loan. It keeps the mortgage current and pays for everything else.
2. 2Life cover second, at least equal to the mortgage balance, so the debt does not survive you.
3. 3Trauma or TPD third, sized to clear a meaningful portion of the loan if a serious illness or permanent disability arrives.
4. 4Redundancy cover last, and only if the wording is genuinely useful for your employment situation.

On structure: decreasing cover that follows the loan balance down is cheaper, but it also removes flexibility. Level cover sized to the original balance leaves surplus as the loan reduces, and that surplus is exactly what funds a family’s living costs after a death. Most advisers prefer level cover with periodic reviews to a policy that automatically shrinks.

On ownership: cover taken through an adviser is yours, not the bank’s. It follows you when you refinance, when you move house, and when you change lender. That portability is one of the clearest practical differences between the two routes.

Every New Zealand insurer writes mortgage protection 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.

• Bank-sold cover is a single insurer’s product; an adviser can compare that product against the wider market on both price and wording.
• Whether cover is assigned to the lender is easy to check and rarely volunteered — an adviser will ask.
• Advisers can structure life cover, income protection and trauma around one mortgage rather than selling a mortgage-branded bundle.
• Cover arranged independently survives a refinance, which lender-tied cover may not.
• Where an existing bank policy is in force, an adviser can compare it before it is replaced — and never cancel it until the replacement is issued.
• Mortgage advisers and insurance advisers are not always the same person; knowing which you are dealing with clarifies whose product you are being offered.

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.