Do I need life insurance?

If you haven't got around to getting life insurance, you're not alone. A Financial Services Council report¹ shows that fewer than a third of New Zealanders have adequate life insurance, even though most of us are likely to need it.

The general rule is to think about how life insurance or income protection insurance can help if someone relies on you financially.

Life insurance helps cover bills like mortages, funeral expenses, or paying off debts if you were to die, while income protection insurance helps cover the bills if you're off work for an extended period because of illness. Beyond covering these essentials, these forms of insurance are useful for helping your family maintain the lifestyle they're used to, for example by helping to pay school fees.

¹Financial Services Council: “Gambling on Life: The Problem of Underinsurance”, January 2020. Downloadable from fsc.org.nz

Who needs life insurance?

People with dependent children

Life insurance is particularly important for people with kids who rely on you to provide for them. They could be your own kids or step-kids who live with you, or any children who you don't live with but support financially.

People with dependent partners, spouses or family members

If your income supports a partner or spouse – or another dependent such as a grandparent – what would happen to them financially if you died? Would they still be able to pay the mortgage or rent and cover their expenses? If the answer is no, life insurance is worth considering. 

People with mortgages

If you died tomorrow, how much would you still owe on your mortgage and who would pay it? Would your family be able to manage the payments or would they have to move out and sell the home? A mortgage is a major financial commitment and life insurance can help protect your family home, so your family won't have to make any big changes to their living situation during an already stressful time.

People with debt

If you have high-interest debt such as credit cards or personal loans, your family may end up having to pay these off if you were to die. Life insurance will allow them to pay off debts, relieving your loved ones of added financial stress.

Who might not require life insurance?

Young people without dependents

Life insurance is less of an immediate priority for young people without dependents. But if you have debt such as credit cards or loans, you may still want to consider income security insurance to cover these commitments. 

Older people without dependents

Older people, particularly those who are single, divorced or widowed and without dependent children or family members should consider reducing or removing their life insurance cover. If you still have a mortgage or debts, it might be worth keeping some cover to repay these. Before you decide to make any changes to your life or income protection insurance arrangements, however, we strongly recommend speaking to an adviser.

You have sufficient financial assets

If you have enough money set aside to cover your expenses and debts and provide financial security for your loved ones, you may not need life insurance. But people often underestimate their living expenses so it's worth having a conversation with an expert to find out if you are in this situation. 

Other types of insurance to consider

Everyone should do a bit of research and consider whether life insurance is the right product for them. If you don't think you need life insurance but want to make sure you're looked after if you were to fall sick, there are other types of insurance you might want to consider looking into. For example, you could look into income security insurance, which can help replace your income if you were to become unable to work.