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“Research shows that Aotearoa is significantly underinsured, meaning many New Zealanders are likely to have inadequate protection.
Globally, Aotearoa ranks 26th out of 56 OECD countries for insurance spend, at 3% of GDP, compared to the OECD average of 9.4%.
[This puts the country between Chile and Columbia, in the league table]
Inadequate protection means that when faced with a shock event, many households and whānau will be unable to recover.
A UK study found that a third of households moved into a lower income quintile after a shock event, and 20% fell into poverty. For a portion of New Zealanders, insurance can be the barrier between financial resilience to shocks and falling (back) into poverty[i].”
That report covered all types of insurance of which Life insurance is a significant part.
Why have life insurance? Let’s look at four key reasons:
To assist with legacy planning and a more equitable inheritance.
Where a family has one significant asset (such as a farm or another kind of business) and more than one child, ensuring an equitable inheritance for all the children is not simple.
Selling part or all of the asset may not be desirable, particularly to the current owner who sees it as their legacy.
It is unlikely that the family has more than one asset of similar value.
One option could be to purchase Life coverage on the life of the current owner.
On their passing, the pay-out would provide those not inheriting the business with a substantial sum by way of compensation.
To replace an income
In many families there is a sole (or at least principal) breadwinner. Loss of their salary would have a dramatic impact on the family’s wellbeing and future plans.
However it is perfectly possible to protect this income, either partially or completely.
If you purchased coverage of ten times your income and that pay out was invested and provided a yield of 5% per year, the family would receive 50% of your salary indefinitely.
To look at what this might cost here is an example:
Income of $100,000 per annum would mean coverage of $1,000,000.
For a 40-year-old male non-smoker would cost less than $18 per week.
For a female non-smoker it would be less than $14 per week.
Worth paying for some peace of mind?
To facilitate business continuity
You are one of, say, three director shareholders in a successful business. The business is valued at $6,000,000. Assuming equal shareholding between the three, if one dies then their widow or widower will probably be expecting to receive around two million dollars for those shares. Do the surviving shareholders have that money on hand? Perhaps but probably not.
If you can’t find the money, then the widow/widower may well be able to sell the shares to someone who can – a competitor perhaps.
Insurance can be written for all the shareholders, ensuring that their families can be paid out swiftly and easily without causing further anxiety and distress at what would already be a difficult time.
To cover the mortgage
By far the most common reason. The bank wants to know that if the person paying back their debt dies, the money will still be repaid.
For many people this requirement that has been imposed on them represents the sum total of their coverage. This simply shows how underappreciated the coverage really is.
Conclusion
New Zealanders are leaving themselves unnecessarily exposed to the hands of fate.
Life insurance can often be a very affordable way of providing more certainty and peace of mind, for yourself, your family and any business partners.
Please do not hesitate to get in touch to discuss your personal situation and obtain professional advice on this and other financial planning matters.
[i] Underinsurance poses a threat to inclusive progress in Aotearoa, Deloitte New Zealand, 9th February 2023
