For many Kiwis, those with children and dependents, life insurance is a necessity. In the event that your loved ones need to claim life insurance to cover their bills, you want to be absolutely certain that the amount that you have left enough money for them. In an already difficult time, you don’t want them to have to struggle to take care of your bills, such as the mortgage or rent.
If you are looking to invest in life insurance, or to review your current level of coverage, it’s vital you know how much insurance you will need.
The general rule of thumb has been that the amount of life insurance you’ll need should be about 10 times your annual income. While this is effective, you can take a more logical approach. Calculate how much money your dependents would need to maintain the same quality of life, and maintain the bills in the absence of your income.
Calculate Your Coverage Needs
Massey University researcher, Natalie Wang, found in a New Zealand study that some people who lost loved ones struggled financially or were forced to reduce their quality of living, because the life insurance payout was insufficient to cover their bills and expenses.
If you are in the position of calculating how much insurance cover you’ll need, there are a few things to consider.
- Your current financial obligations. For example, how much would you need to pay to clear your outstanding mortgage?
- Other outstanding debt. Such as credit cards and personal loans.
- In the event of your death, will your family need an ongoing income?
- Do you have children that you provide for? Consider their school and university fees, and medical bills.
- Funeral expenses. It costs, on average, just under $9,000 for a funeral in New Zealand. Would you like this to be covered in the event of your death? Could your family and dependents afford to pay this themselves?
Once these points have been considered, you’ll have a good idea of the level of cover you’ll need. Most Kiwis choose to get enough life insurance to cover all the outstanding debt on their mortgage. Although, some Kiwis choose to cover less than this. The less you have covered, the less your premium will be. You could also consider lowering your premium if a surviving partner has enough income or savings to manage bills without your income.
As a general rule, the more you cover, the higher and more expensive your life insurance premium will be. It’s a good idea to work with a life insurance broker or specialist advisor to help you find the right level of life insurance cover for your unique needs.
Regular Life Insurance Check-Ins
Life insurance is not a “set and forget” product. It’s crucial that you make a regular habit of reviewing and reassessing your life insurance policy and coverage needs. Things change in life. For example, you may have another child. Or you may become a first time home owner, or retire. It’s important to review your life insurance to either increase or decrease your coverage. There is no point in paying for more than you need, and you certainly don’t want to not have enough.
Chat with an Insurance Broker
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