Janine Ogier: Putting a premium on life

COMMENT


While we're enjoying life, we find it hard to face the facts of death, let alone the financial ramifications of dying.

So life insurance is a product which has to overcome people's evasiveness about acknowledging we are all going to die some day.

No one wants to imagine what life would be like for their partner and children in their permanent absence.

For people with dependants, the marketing premise of life insurance makes sense. You have to think about how they would cope financially if you die.

It is not just about being kept in the fashion they are accustomed to, but getting by.

Sure, that means you first have to take a deep breath and admit you might die before what you think is your time.

But it can't be that hard as planning now for what could happen is something we usually don't hesitate about with regards to vehicle and house insurance.

For that, people have to sit down and value the asset and think what it would cost to repair or replace if something untoward happened.

In the case of life insurance, what can be replaced is the income which a family revolves around.

The house could be sold, the investments cashed in or the family jewels auctioned off. But would anyone want their family to go through that as part of the grieving process?

Some people will be able to rely on relatives to pitch in and maintain the family lifestyle if someone dies and they may be able to do without life insurance. It's a case of weighing up individual circumstances.

Once a decision has been made to buy life insurance - Kiwis spent $1.09 billion on life insurance premiums in the year to June 30 - the key choices are what kind and how much cover.

Things that need to be considered include the family's annual expenses such as the cost of paying off your mortgage, funding education and child care for children, and retirement savings for a non-working spouse, plus funeral expenses.

Once you have figured out how much you need, you have to consider the type of insurance to buy and how you want to pay for it.

In New Zealand, there are mainly two types of life insurance: term and whole of life/permanent.

Term life insurance provides benefits for a specific term and pays a benefit to family members if the insured person dies while the policy is in effect.

Whole life or permanent life insurance is more expensive than term life insurance and can be kept as long as you live.

It is not as popular as term life insurance but appeals to those who want their family to have a sum of money to inherit no matter when they die. It is another way of saving as it has an investment component.

How much life insurance costs depends on sex, age, health and lifestyle. It is cheaper for women, non-smokers and when you are younger.

Whether you need a medical examination depends on how much the policy is for and things such as if you are overweight or have health problems.

Buying life insurance can be as easy as filling in a form at The Warehouse and paying as little as $9.99 a month. Many banks have their own life insurance subsidiaries.

The Financial Planners and Insurance Association says better deals can be found if people sit down with an adviser for a detailed evaluation of their circumstances.

Premiums can be paid in a variety of ways. They can be level, which means they start out expensive but increase in price slowly over the years, or stepped, which means they start out cheap and increase in price at a faster rate as you age.

You can choose a guaranteed premium too, which means the figure paid is fixed for a period.

The thing about term life insurance is that it may be relevant now when your dependants would be in financial strife without you, but not be so crucial in future years.

The key is to re-evaluate how much you are insured for every couple of years, as your debt obligations may have decreased and the children become independent.

Eventually, it may not be necessary to have life insurance.