NZ Level 5 Life, Disability and Health Insurance cheat sheet
NZ Level 5 Life, Disability and Health Insurance · Keep the key ideas within reach.
Regulatory and Ethical Framework
New Zealand life, disability and health insurance is governed by the Financial Markets Conduct Act 2013 (FMCA), the Financial Services Legislation Amendment Act 2019 (FSLAA) and the Code of Professional Conduct for Financial Advice Services (the Code).
The Code has two parts: Part 1 ethical standards (client interests first, integrity, transparency, care/skill/diligence) and Part 2 minimum standards of competence, knowledge, skill and client care.
A financial adviser who gives regulated financial advice to retail clients must operate under a Financial Advice Provider (FAP) licence or be an authorised body; individuals must be nominated and meet competence requirements.
Disclosure duties include: nature and scope of advice, any limitations, fees, conflicts of interest, and the adviser's licensing status - provided before or at the time advice is given.
The Financial Markets Authority (FMA) is the conduct regulator; the Reserve Bank of New Zealand (RBNZ) prudentially regulates insurers under the Insurance (Prudential Supervision) Act 2010.
The Insurance Contracts Act 2008 does not apply to life insurance (it applies to general insurance); life policies are governed by common law, the FMCA fair dealing provisions and the policy wording.
The Financial Services Complaints Ltd (FSCL) or Insurance and Financial Services Ombudsman (IFSO) provide free external dispute resolution; advisers must belong to a dispute resolution scheme.
Anti-money laundering obligations arise under the AML/CFT Act 2009: customer due diligence, beneficial ownership identification and suspicious activity reporting for life insurance products.
Privacy Act 2020 governs collection, use and disclosure of client information; advisers must obtain consent, store securely and allow access/correction.
Life Insurance Products and Policy Structures
Term life pays a lump sum on death (or terminal illness) within a fixed term; no cash value; cheapest per dollar of cover for a defined need period.
Whole-of-life cover is permanent (to age 100 or death) and may be participating (with bonuses) or non-participating; premiums are higher than term for the same sum insured.
Trauma/critical illness cover pays a lump sum on diagnosis of a defined condition (e.g. cancer, heart attack, stroke) subject to survival periods and definitions in the policy wording.
TPD (total and permanent disability) pays a lump sum when the insured meets the policy's disability definition - 'any occupation' is stricter than 'own occupation'.
Premium structures: stepped (age-banded, increases each year), level (fixed), and YRT (yearly renewable term); riders can be attached to a base policy.
Key policy features: waiting periods, survival periods, benefit periods, indexation, guaranteed renewability, non-forfeiture, and exclusions (suicide clause, pre-existing conditions).
A life policy may have a nominated beneficiary; under the policy wording proceeds are paid to the estate or beneficiary, and relationship property/trust ownership affects who receives the benefit.
Premium loadings and exclusions are imposed at underwriting; non-disclosure can allow the insurer to avoid the policy under common law misrepresentation/fair dealing rules.
Disability and Income Protection Insurance
Income protection (IP) replaces a percentage of pre-disability income (commonly up to 75%) while the insured is unable to work due to illness or injury.
Benefit period options (e.g. 2 years, 5 years, to age 65) and waiting periods (e.g. 14, 30, 60, 90 days) trade off premium against protection.
Definitions matter: 'own occupation' (can perform own job) is broader than 'any occupation' (can perform any job suited by education/training/experience); 'activities of daily living' is a stricter test.
Agreed-value vs indemnity value: agreed value pays a pre-agreed sum insured; indemnity value pays a proportion of actual lost income (typically 75%).
TPD and trauma riders can be added to IP; TPD covers permanent disability, IP covers temporary loss of income.
Key exclusions commonly include self-inflicted injury, normal pregnancy/childbirth, war, criminal acts, and pre-existing conditions; waiting periods apply to claims.
Offset clauses reduce benefits by other income (e.g. ACC, employer sick pay, superannuation); ACC covers work-related injury, so IP typically tops up non-work illness/injury.
Rehabilitation and return-to-work provisions may reduce or suspend benefits when the insured resumes part-time work.
Health and Medical Insurance
Health insurance covers medical costs (hospital, surgical, specialist, diagnostic); it complements rather than replaces the public system.
Hospital cover pays for private hospital treatment; extras/ancillary cover pays for dental, optical, physiotherapy, chiropractic and similar services.
Common features: excess (amount paid per claim/year), co-payment, waiting periods for pre-existing conditions, and annual limits or sub-limits per service.
Pre-existing condition clauses exclude or restrict cover for conditions existing before the policy start (or a defined look-back period); disclosure at application is critical.
New Zealand has community-rated health insurance: premiums are not individually risk-rated by health status, age or claims history (though age bands and discounts may apply).
Southern Cross Health Society is a not-for-profit friendly society; other insurers offer similar products; all are subject to the Fair Insurance Code and FMCA fair dealing.
Health insurance is not a substitute for ACC (which covers accidental injury); overlap and coordination with ACC should be explained to clients.
Premium increases occur annually and reflect claims inflation and age; clients should be warned about affordability over the long term.
Needs Analysis and Client Fact-Finding
Fact-finding should capture: personal details, dependants, income/expenses, assets/liabilities, existing cover, health, occupation, goals and risk tolerance.
Needs analysis quantifies the financial gap: e.g. income replacement need = annual income × years of support; debt repayment need = outstanding liabilities; education/final expenses add to the total.
Capital needs approach: sum of debts + future expenses + emergency fund − existing assets/cover = lump sum need.
Income needs approach: replace a percentage of income for a defined period, adjusted for inflation and existing income sources (ACC, superannuation, partner income).
Human life value approach: present value of future earnings the family would lose; useful for high-income earners.
Prioritise needs: clear immediate debts and income protection first, then lump-sum life/TPD/trauma cover, then health cover.
Record the client's goals, constraints, risk profile and the rationale for recommendations in a Statement of Advice (SoA) or record of advice.
Review triggers: change in marital status, dependants, income, debt, occupation or health; recommend periodic reviews (e.g. annually).
Product Comparison, Recommendation and Suitability
Compare products on: sum insured, premium, definitions, exclusions, waiting/survival periods, benefit period, indexation, guaranteed renewability and insurer financial strength.
Suitability requires matching the recommendation to the client's needs, goals, risk profile, affordability and existing cover - not just lowest premium.
The Code requires advice to be suitable and to prioritise the client's interests; conflicts (commissions, soft dollar) must be disclosed and managed.
Commission structures (upfront and trail) can influence recommendations; advisers must disclose remuneration and ensure it does not drive advice.
A Statement of Advice should state the client's needs, the recommended product(s), why alternatives were rejected, costs, and any risks/limitations.
Product replacement (switching) requires a comparison of lost benefits (e.g. accrued bonuses, new waiting periods, re-underwriting) against gains.
Insurer strength and claims-paying reputation, plus policy wording clarity, are key qualitative comparison factors.
Document the comparison table and reasoning; retain records for at least 7 years (or as required by the FAP).
Underwriting, Disclosure and Policy Administration
Underwriting assesses risk via medical, lifestyle, occupational and financial questions; outcomes are standard rates, loadings, exclusions or decline.
Duty of disclosure: the applicant must disclose all material facts the insurer would consider relevant; failure can allow the insurer to avoid the policy or reduce a claim.
Material facts include past/current medical conditions, family history, smoking, hazardous occupations/hobbies, and other insurance applications.
Insurers may request medical reports, blood tests or GP records; the applicant consents to this under the Privacy Act 2020.
Policy administration: issue of schedule and wording, premium payment, grace periods, reinstatement after lapse, and changes (sum insured, beneficiaries, address).
Cooling-off period (commonly 14–30 days) allows cancellation for a refund, subject to no claim having been made.
Assignment and ownership changes (e.g. to a trust) must be recorded; beneficiary nominations should be reviewed after life events.
Claims and complaints records, plus underwriting decisions, must be retained and be available for FMA/dispute resolution review.
Claims Handling and Client Service
On notification, the insurer verifies cover, premium status and disclosure; the claimant completes a claim form and provides evidence (medical reports, death certificate, proof of income).
Insurers must assess claims promptly and fairly; the Fair Insurance Code sets standards for communication and timeframes.
Common claim issues: non-disclosure, policy lapse for unpaid premiums, exclusion clauses, and definition disputes (e.g. 'own occupation').
For death claims, the insurer pays the nominated beneficiary or estate; probate may be required if paid to the estate.
For income protection, proof of ongoing disability and income loss is required at each payment period; rehabilitation and return-to-work support may be offered.
If a claim is declined, the client can complain internally, then to the external dispute resolution scheme (FSCL/IFSO) free of charge.
Client service standards: acknowledge promptly, explain the process, provide a single point of contact, and keep the client informed of progress.
Record all claim communications and decisions; privacy and consent apply to medical information shared during claims.
Ethics, Conduct and Client Care (Cross-cutting)
The Code's ethical standards: act with integrity, prioritise client interests, act with care, skill and diligence, and be transparent about fees, conflicts and limitations.
Treat clients fairly: clear communication, no misleading statements, and appropriate handling of vulnerable clients.
Conflicts of interest must be identified, disclosed and managed; commissions and incentives must not compromise suitability.
Confidentiality: client information is used only for the purpose collected, shared with consent, and stored securely under the Privacy Act 2020.
Competence: advisers must maintain currency through continuing professional development and only advise within their competence and scope.
Complaints must be handled under an internal process and escalated to the external dispute resolution scheme if unresolved.
Record-keeping: retain advice, disclosure and client records for at least 7 years to demonstrate compliance.
Regulatory Bodies and Dispute Resolution
FMA: conduct regulator for financial advice and fair dealing; monitors FAPs and the Code.
RBNZ: prudential regulator of insurers under the Insurance (Prudential Supervision) Act 2010; monitors solvency and governance.
FSCL and IFSO: approved dispute resolution schemes; membership is mandatory for FAPs and insurers.
Commerce Commission: enforces fair trading and consumer law relevant to insurance marketing.
Privacy Commissioner: oversees Privacy Act 2020 compliance for client data.
Financial Advice New Zealand (professional body) promotes standards and CPD; membership is voluntary.
Advisers must be registered on the Financial Service Providers Register (FSPR) and disclose their FSP number.
Insurance Taxation and Structures (NZ)
Life insurance premiums are generally not tax-deductible for individuals; proceeds are generally tax-free to beneficiaries.
Income protection premiums may be tax-deductible for the self-employed/business owners; benefits are then taxable income.
Health insurance premiums are not tax-deductible for individuals; no general subsidy (unlike some other jurisdictions).
Business key-person and business continuation policies: premiums may be deductible depending on structure; proceeds may be taxable - seek tax advice.
Policies owned by a trust: proceeds may be treated differently for tax and relationship property; ownership should be documented.
ACC levies and entitlements interact with IP benefits; ACC payments are generally not taxable but affect offsets.
GST generally does not apply to life insurance premiums (financial services are exempt), but health insurance may have specific treatment - confirm with the insurer.
Risk Management and Insurance Principles
Insurable interest: the policyholder must benefit from the continued life/health of the insured (e.g. self, spouse, business partner).
Utmost good faith: both parties must act honestly and disclose material facts.
Indemnity principle: insurance restores the insured to their pre-loss financial position (relevant to income protection, not life lump sums).
Moral hazard and adverse selection: underwriting and exclusions manage these risks.
Pooling of risk: premiums from many policyholders fund claims; community rating for health insurance spreads risk across the pool.
Reinsurance: insurers transfer part of their risk to reinsurers, affecting capacity and pricing.
Risk management process: identify, assess, treat (avoid, reduce, transfer, retain) and review risks - insurance is one transfer tool.
Client Communication and Vulnerable Clients
Use plain language; explain definitions, exclusions and waiting periods in terms the client understands.
Confirm the client's understanding and provide written disclosure and the SoA.
Identify vulnerable clients (age, illness, bereavement, financial hardship, language barriers) and adapt communication and support.
Obtain consent before contacting third parties (e.g. doctors, employers) and share only necessary information.
Set clear expectations about timeframes for underwriting and claims.
Provide a clear complaints pathway and the external dispute resolution scheme details.
Keep records of all communications to demonstrate compliance and support future claims.
Product Wording and Definitions
Read the policy wording: definitions, exclusions, conditions and claims provisions determine cover, not the marketing material.
Key definitions: 'disability', 'total and permanent disability', 'critical illness', 'pre-existing condition', 'waiting period', 'survival period'.
Exclusions commonly include suicide (within a period), self-inflicted injury, war, criminal acts, and pre-existing conditions.
Conditions precedent: premium payment, disclosure, and notification within a specified time.
Guaranteed renewability means the insurer cannot cancel or refuse renewal, but may adjust premiums by class.
Indexation increases sum insured and premium annually to counter inflation; clients can usually opt out.
Riders (trauma, TPD, waiver of premium) attach to the base policy and may have their own definitions and limits.
Business and Group Insurance
Group life/health schemes cover employees under a master policy; underwriting may be simplified with eligibility and free-cover limits.
Key-person insurance protects a business against the loss of a key individual; the business owns the policy and is the beneficiary.
Business continuation/disability buy-sell cover funds the purchase of a departing or disabled owner's share.
Premiums may be deductible for the business; proceeds may be taxable depending on structure - tax advice is needed.
Group schemes often have waiting periods, eligibility rules and continuation options on leaving employment.
Review group cover regularly as headcount, salaries and roles change.
Disclosure obligations apply to the employer and employees; non-disclosure can affect claims.
Premium Calculation and Rating Factors
Life premiums are based on age, gender, smoking status, sum insured, term, occupation, health and family history.
Health insurance is community-rated in NZ: premiums reflect age band and plan, not individual health status.
Income protection premiums reflect occupation class, income, waiting period, benefit period and definitions.
Loadings (e.g. +50%) and exclusions are applied for higher-risk applicants; standard rates apply otherwise.
Stepped premiums rise with age; level premiums are higher initially but may be cheaper long term.
Discounts (e.g. multi-policy, direct debit) reduce premiums; disclose all fees and charges.
Premium affordability should be tested against the client's budget over the policy term.
Claims Evidence and Documentation
Death claim: death certificate, claim form, proof of identity, and policy documents.
Trauma claim: medical specialist report confirming diagnosis and meeting the policy definition.
TPD claim: medical evidence of permanent disability per the policy definition (own/any occupation).
IP claim: medical certificates, proof of income loss, employer confirmation, and ongoing reviews.
Health claim: invoices, receipts and treatment details; excess and limits apply.
Insurers may request independent medical examinations or specialist reports.
Keep copies of all documents and record claim decisions and reasons.
Review, Replacement and Servicing
Review cover at least annually and at life events (marriage, children, mortgage, job change, health change).
Replacement analysis: compare lost benefits (bonuses, waiting periods, re-underwriting) against gains (lower premium, better definitions).
Switching may require new underwriting and can result in exclusions or loadings.
Update beneficiary nominations and ownership after life events.
Confirm premium payment method and review affordability.
Document the review and any changes in a record of advice.
Escalate complaints through internal and external processes if servicing issues arise.
Fair Dealing and Misleading Conduct
FMCA fair dealing provisions prohibit misleading or deceptive conduct in relation to financial products and advice.
Marketing must be accurate and not overstate cover or understate exclusions.
Advisers must not make false or unsubstantiated claims about products or insurer strength.
Disclose conflicts and remuneration clearly; hidden commissions breach transparency standards.
Ensure client understanding; avoid high-pressure sales tactics.
Keep records of advice and disclosure to demonstrate fair dealing.
Breaches can lead to FMA action, penalties and dispute resolution outcomes.
Professional Development and Competence
Advisers must meet the Code's competence standards: knowledge of products, law, and client care.
Maintain CPD records and stay current with regulatory changes (e.g. FSLAA, Code updates).
Only advise within scope; refer to specialists (e.g. tax, legal) where needed.
Keep up to date with insurer product changes and claims practices.
Participate in peer review and quality assurance.
Document training and competence evidence for FAP and FMA review.
Ethical conduct and client care are assessed alongside technical competence.