Life insurance is one of the most misunderstood financial products, often surrounded by myths and misconceptions that prevent people from making informed decisions. Whether you think it’s too expensive, unnecessary, or just too complicated, it’s time to separate fact from fiction.
Let’s debunk some of the most common life insurance myths and set the record straight!
Reality: Many people overestimate the cost of life insurance. Research shows that consumers believe life insurance is significantly more expensive than it actually is. In reality, policies can be quite affordable, especially if you purchase coverage at a younger age and in good health. By working with an adviser, they can help you compare insurance providers and different options that fits both your needs and your budget.
Reality: While youth and good health reduce the likelihood of immediate need, they also make life insurance more affordable. Locking in a policy early allows you to secure lower premiums and protect your future financial stability. Accidents, illnesses, and unexpected events can happen at any age, making early coverage a wise decision.
Reality: Some workplaces in New Zealand offer life insurance as part of their benefits package, but these policies often provide only limited coverage – typically one to two times your annual salary. This might not be enough to cover mortgage payments, debts, or long-term financial security for your family. Additionally, some employer-provided policies are not portable, meaning there is the potential that you could lose coverage if you leave your job. It is important to check the fine print on employer-provided policies so that you are aware of any potential fishhooks like this.
Reality: While life insurance is crucial for those with dependents, it also serves other purposes. If you have debts, co-signed loans, or funeral expenses, life insurance can prevent these costs from burdening your family. People underestimate the need to take time off for the grieving process, but life insurance policies can enable this to happen without the financial strain.
Reality: In New Zealand, life insurance payouts are generally tax-free for beneficiaries. This means your loved ones receive the full death benefit without needing to worry about deductions. However, if a policy is part of a taxable estate, there could be some tax implications. Consulting with a financial adviser can help ensure the policy is structured effectively.
Reality: While covering the primary earner is crucial, stay-at-home parents or partners also contribute significantly to a household. Childcare, home maintenance, and daily support all have financial value. If a stay-at-home parent passes away, the surviving partner may need to pay for these services, making life insurance just as important.
Reality: While younger individuals typically get better rates, it’s never too late to purchase a policy. There are options for different age groups and health conditions, including guaranteed-issue policies that don’t require a medical exam. These policies may come with higher premiums, but they still provide valuable coverage and peace of mind.
Reality: While certain health conditions may impact premiums, many insurers offer policies for people with pre-existing conditions. Some companies specialise in high-risk policies, and medical advancements have made it easier to secure coverage. Even if traditional life insurance isn’t an option, different providers over different policies and have varying underwriting policies. An insurance adviser will help you assess your needs and let you know what options are available.
Life insurance is an essential financial tool that provides security and peace of mind. Don’t let misconceptions stop you from making an informed decision.
By understanding the realities behind these myths, you can choose a policy that fits your needs and ensures your loved ones are financially protected.
We recommend reviewing your insurances once every 12-months, or when you have a major life change. This month, if you book a free mortgage, insurance or KiwiSaver review, you’ll also go in the draw to win a month’s mortgage repayments on us (up to the value of $5,000). To book your review, click here.
The content of this article should not be taken as financial advice, or a recommendation of any financial product. These insights are based on current economic commentary, market pricing for interest rates, and our personal opinion. Threefold is not liable or responsible for any information, omissions, or errors present.