Kiwis love their homes… most nights on TV you can find a show about home design, renovating or gardening. But these days the ‘Kiwi dream’ seems to come with a hefty mortgage.
When you buy your first home it’s exciting to start planning all those BBQ’s, new paint colours, and stylish renovations. In reality there are some more serious issues to highlight, like what insurance you should get and whether you are in fact under-insured.
Scarily, Kiwis are typically under-insured or not insured at all. A 2018 survey from TradeMe confirmed little has changed since 2013 when the survey was first run, with only 51% of respondents saying they have Life Insurance.
In 2011 Massey University and the NZ Financial Services Council conducted some research into Under-Insurance in NZ. They found that while we didn’t have, what they called, a ‘crisis of cover’ we did have poorly chosen levels of cover. Our level of cover doesn’t correspond to our financial vulnerability, i.e. we don’t have the right amount of cover for our needs. They concluded Kiwis make vague guesses about how much they need rather than working it out.
Newshub spoke to Pinnacle Life’s General Manager Operations Amy Cavanaugh about how much insurance you need and the key differences between Life and Mortgage Insurance. She suggests you need to understand what you’re trying to protect to make sure you get what you need.
So what are the differences between the two? Why is Life insurance usually a better option than Mortgage insurance to protect your family? And how do you work out what you need?
Life insurance vs Mortgage insurance
Mortgage and Life Insurance are two different products. The key difference is who the money is paid out to.
Mortgage Insurance: Mortgage Insurance simply pays off your mortgage if you die, or earlier if you’re diagnosed with a terminal illness. The tax-free lump sum will be paid directly to your nominated mortgage lending institution. This will keep a roof over the heads of the people you leave behind but it won’t pay for your funeral, or any other on-going expenses.
Life Insurance: Life Insurance can pay your mortgage AND the bills if you die or earlier if you’re diagnosed with a terminal illness. The lump sum is paid to the owner of the policy (tax-free) and can be used not just to pay off the mortgage but for anything they choose.
For example, it may simply pay off the mortgage, but it could also be used to buy groceries and pay the bills and basically supplement the income you have lost while you take time to grieve, or it can be put aside to invest in your children’s education or whatever else you choose.
Important life events
Significant lifetime events such as getting married, having children, changing jobs or buying a house, are usually a good time to think about Life Insurance. At each of these points you might decide you need it for the first time or find you need more cover than you currently have.
"It seems Kiwis just don’t like to think about the worst-case scenarios. At Pinnacle Life we urge you to think this through," Cavanaugh says. "Some questions you might start off thinking about are."
If anything happens to one of us:
● Can my partner afford to pay the mortgage?
● Could they also pay bills and groceries?
● Could they afford child care? (assuming they have children)
● How can I make it as stress-free for the people I love, as possible?
Thinking through these questions will help you work out how much cover you need.
Pinnacle Life is an independent New Zealand owned and operated life insurance provider. Their goal is to make life insurance more accessible and to provide every Kiwi family with the choice of protecting themselves in a way that is as easy and stress-free as possible. They provide life insurance designed by Kiwis, for Kiwis.
This article is created for Pinnacle Life.