If you already have Life Insurance you need to know about this.
If you don't have life insurance then you probably want to know about this...
A pretty standard feature of most life insurance policies today is something that none of us really like to talk about: Terminal Illness Benefit. It is a way of paying out the life insurance while you are still alive if you have been diagnosed with a terminal illness.
Nobody actually wants to claim on their life insurance. Not ever. The sad reality is that many people aren't fully prepared for the financial impact on themselves and their families if they are diagnosed as being terminally ill.
What is even more sad is many clients forget about this benefit in their life insurance policy in their time of highest stress... and it is there waiting to be used.
Of course one of the things to be aware of is that often when somebody has been diagnosed with a terminal illness and the life insurance benefit is paid out, much of the insurance money goes on trying to provide the best possible treatment and care. That is perfectly logical, reasonable and to be expected. It often presents an issue for the surviving family though.
Would you prefer Life Insurance to pay the family an income?
One of the innovations in life insurance in recent years that remains a bit of a mystery to many is a type known as “Family Income”, or “Family Protection”. It is life insurance that works the same way as other types of life insurance to get a claim, but the method of paying it out is very different. Instead of paying one large lump sum of insurance to a grieving family, it pays it out an agreed rate per year, for an agreed number of years.
Many families would far rather receive a regular income over a period of time, rather than that one large lump sum. For many, it seems as though the money magically lasts longer as it is far easier to budget and use the payment wisely. When a family has a life insurance claim, no matter which family member it is that has passed away, it is a time of the worst emotional stress.
What would happen to your family if one of life's unexpected events occurs?
Most people don’t think twice about insuring their car or house just in case something happens, but unfortunately many New Zealanders don’t consider the implications if something happened to them or their income.
How would you cope financially if you couldn’t work or had big medical bills to pay?
It makes sense to protect the things you care about most in life, which may be your ability to earn an income, your health, your family or a combination of these things.
There are many different Insurance Companies each with a large number of different types of products and policies. Selecting the right product/s for your particular situation isn’t easy. Yet this decision is potentially one of the most important you will ever make should the worst happen and you need to make a claim.
Life Assurance (a lump sum payable on death)
Trauma Cover (a lump sum payable if you suffer one of a number of critical illnesses and conditions)
Total & Permanent Disability Cover (a lump sum payable if you become unable to work)
Health Insurance (hospital and specialist cover through to full comprehensive package)
Income Protection Cover (replacement income if disability prevents you from working)
Business Insurance (Key person cover for business succession, overheads, income protection)
The one financial product nobody likes talking about it is “life insurance”. The only important statistic is that 100% of us will die, and nobody wants to think about that. Even though everybody eventually dies it doesn’t mean that everyone needs life insurance.
Some people don’t need life insurance, but others do. How do you know if it’s you?
Life insurance is unnecessary if you have no dependants and no liabilities that your existing estate can’t meet. If there is nobody financially dependent on you then there is no real financial loss to anybody else. There are 2 possible exceptions to this generalisation however.
Sometimes a lender wants insurance as extra lending security, and so a new homeowner might have to take out life cover to get the loan. Also, some people might have family medical history that makes it harder to get insurance later in life, so it may be worthwhile getting life insurance while young and healthy, before they actually have dependants.
Life insurance must be considered though when someone else is dependent on your financial contribution. In plain English: if you weren’t around anymore, but your earnings are still needed, then you should have life insurance. There is just no other product that will deliver enough money to your family when you are gone.
So if you know you need some cover the key question is simply “how much?”
An interesting statistic, that is often ignored, is that 100 of every 100 people alive today will die. That is called 100% mortality - No one gets out alive.
We know it is going to happen – that “statistic” is a surprise to nobody. Yet many people have a fear of discussing life insurance – or think it isn’t necessary for them at the moment. Sometimes people are quite correct – they do NOT need it. But how can you tell if you are unsure?
There are 2 key areas to think about when considering Life Insurance:
When is it necessary?
And when it is, how much do you need?
Life insurance is a waste of money for anyone who has no dependants or liabilities that their existing estate couldn’t meet. In other words, when there is no-one else financially dependent on you there is no real loss that requires life insurance to step in and fix.
There are 2 possible exceptions to this general rule though. Sometimes a lender will insist on some cover to increase their lending security, and sometimes people will start an insurance program before they actually need it just to ensure they get cover on good terms (guarantee their insurability while they are in good health).
You see them advertised everywhere it seems, and as it turns out these policies might just be one off the biggest money-wasters for consumers in the insurance world.
It is understandable that some people don't want their loved ones to have to pay for their funeral but before you decide to buy one of these policies why not discuss it with them first? Some loved ones might be happy to pay when the time comes and prefer you enjoyed the money you'd be spending in premiums.
And if you already have a life insurance policy you might find you already have "funeral cover" or can convert a portion of your existing life insurance policy to funeral cover at no cost.
Consumer NZ looked into these in 2016 and this is what they had to say:
“Funeral insurance marketing plays on people’s fears about being a burden on their families. But it is easy to end up paying thousands more in premiums that the insurance policy will pay out” according to Sue Chetwin. Consumer NZ reviewed 10 policies offering $10,000 funeral cover for a 64-year-old and the review found that by age 84 the amount paid in premiums exceeded the $10,000 cover with most policies. In some case the insured person would have paid twice what they were entitled to be paid out.
Remember that if you stop paying the premiums your policy will lapse and you'll get nothing, irrespective of how much you've paid in. There are no refunds. Some policies pay out the amount insured - or whatever you've paid in premiums - whichever is higher. But you have to keep paying the premiums until you die. If you have a policy for $10,000 and you've already paid $10,000 or more in premiums if you stop you will get nothing. You have to keep paying those premiums to get anything back.
So it turns out that this type of life insurance just might be one of the most expensive ways to pay for a funeral if you end up having average life expectancy.
Why insurance is important, you never know when you might need it.
Insurance is viewed by many as a necessary evil, in the perfect world it would be nice to be covered for everything but unless you have several thousand dollars to cover the premium that is just not feasible in the real world.
What should insurance cover? Most people use insurance to cover their debts i.e. their mortgage and this isn’t just the accident cover that the mortgage broker or bank will try and sell you at point of entry. You need life cover to pay off the debt in the unfortunate event of your death. Then if possible it would be nice to give a lump sum to help your partner or children through their life – this could cover educational fees or setting up a business for your now single partner. The alternative is a possible forced sale of the property to cover the debt which just adds to the current stress levels.
The most important asset you have is your income but very few people cover this, ask yourself what would happen if your income ceased today? You need cover for this, but which type indemnity or agreed value, put simply do you want to know how much the insurance company will pay out at claim time or do you want to have to provide proof at time of claim? I know which one I would prefer.
Health is another area to cover, not the whole shooting match but just the basics, hospital and specialist should suffice, you can get a more comprehensive package but it all costs.
Imagine if your employer gave you choice in the salary package that you could take.
For example, what if you were given the following to choose from?
a. Annual Salary = $50,000 plus 4 weeks annual leave, plus 7 days annual sick leave; OR; b. Annual salary = $48,500, plus 4 weeks annual leave, plus 7 days annual sick leave PLUS 75% of your income is guaranteed until age 65 if you get too sick (or hurt) to be able to come back to work again.
Think about your choice carefully.
You could get paid the top salary and take all the risk yourself of being able to go to work each day and continue earning an income. Or you could forego a little of the income – but not your other employment benefits – in return for a guarantee that regardless of what happens to your future health you will keep earning money through your working life.
That is an enormous amount of potential risk that you can pass to somebody else if you want to, or you can choose to keep all the income and all the risk for yourself.
Put some simple numbers around it to help weigh up the options. If you are 45 and earning $50,000 p.a. through until age 65 then that is an even $1,000,000 in future income at risk – all dependent on you staying healthy and being able to go to work of course. Would you be willing to trade perhaps 3% of that to secure most of your future income for the rest of your working life?
In a recent NZ Herald article lung cancer has been termed as the deadliest cancer and talks about lack of treatment options here in New Zealand. Lung cancer is attributed to killing five Kiwis a day, making it a top killer among other cancers including breast and prostate cancer.
In a comparison between NZ and Australia, it is reported that while our neighbours have access to 11 publicly funded non-small cell lung cancer treatments, we have only three. The new treatment approval process in NZ is painfully slow compared to other OECD countries. For instance on average within the OECD the cancer treatment approval process took less than 250 days but would take more than 1,500 days in NZ, stated Philip Hope - Chief Executive of the Lung Foundation.
For cancer patients another option for treatment is to go the non-PHARMAC treatment route. So what’s the difference between PHARMAC and non-PHARMAC? To put simply, PHARMAC drugs are the ones which are funded by the New Zealand government under the public healthcare system and that have been approved by Medsafe. There are a lot of drugs that are not PHARMAC funded but are Medsafe-approved - we call these non-PHARMAC drugs.
Non-PHARMAC drugs could be the most appropriate treatment for patients for a range of reasons. But they can be very, very expensive. Non-PHARMAC benefits in health insurance provide funding for non-PHARMAC medicines – creating greater choice in treatment when it’s needed. nib Ultimate Health Max provides cover for non-PHARMAC drugs up to $300,000 (and $600,000 if treatment includes surgery). There is also a $20,000 non-PHARMAC benefit under both nib's Ultimate Health and Easy Health policies.