Life cover vs mortgage-specific cover

A mortgage is a debt, and a life policy is a sum of money. If the sum of money is at least as large as the debt, the debt can be cleared — it does not matter whether the policy has the word mortgage in its name. What differs between the two routes is flexibility, portability and who controls the money.

Mortgage-specific life cover is frequently structured as decreasing term: the sum insured falls each year in line with an assumed amortisation schedule. It is cheaper, because the average sum insured over the term is lower. It is also rigid, because it assumes your loan will reduce on schedule, that you will not top it up, and that your family needs the debt cleared and nothing else.

Plain level life cover sized to the mortgage at the start does something better. As the loan reduces, the surplus grows — and that surplus is what a surviving partner lives on while deciding whether to keep the house, move, or stop work for a year. Insurance that clears the debt and leaves nothing else has solved the bank’s problem rather than the family’s.

There is one honest argument for decreasing cover: affordability. If the choice is between decreasing cover you can pay for and level cover you cannot, take the decreasing cover. But price both before deciding, because the gap is often smaller than expected — and reducing a level policy later is always possible, while increasing one requires underwriting.

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

• Whether the policy is level or decreasing, and what schedule a decreasing policy assumes.
• Whether the policy is assigned to the lender, and what that means for who receives the money.
• Whether the cover ends when the loan is repaid or refinanced.
• Whether the terminal illness benefit is included and what life expectancy it requires.
• Whether the sum insured can be increased later without underwriting after a mortgage top-up.
• Who is nominated to receive the payment, and whether that nomination is current.

Every New Zealand insurer writes mortgage protection 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.

• Special events benefits allow cover to be increased without medical evidence after a mortgage increase — an option that mortgage-specific products may not include.
• An adviser can compare a lender’s product against the wider market on both wording and price, which the lender cannot.
• Where an existing bank policy is in force, an adviser will confirm the new cover is issued before anything is cancelled.
• Structuring life cover to sit above the mortgage rather than exactly on it is a small change with a large effect on the family’s options.

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.