Life insurance products and policy structures
This domain examines the life-risk products available in New Zealand and the structural choices - ownership, beneficiary, premium pattern and riders - that determine whether a policy actually delivers at claim time.
Core product set
- Term life: pays a lump sum on death within a defined term. Sum insured can be level or decreasing (matched to a mortgage).
- Whole of life and endowment: lifelong cover with a savings or surrender element; higher cost, slower cash build-up.
- Funeral cover: small sum insured, simplified underwriting, quick payout.
- Living covers as riders or standalone: trauma/critical illness (pays on a defined medical event), TPD (total and permanent disability), waiver of premium.
- Business covers: key person, business continuation/buy-sell, debt protection.
Structures that matter
Ownership can sit with the individual, a policy trust or a business. A beneficiary nomination under the Life Insurance Act 1908 directs proceeds without probate but can be overtaken by a later nomination or assignment. Joint life first-death policies pay once. Premiums are usually stepped (age-rated, cheap now, expensive later) or level (higher now, fixed); indexation protects the sum insured from inflation.
Worked example
A 35-year-old with a $500,000 mortgage and two young children wants the cheapest option today. Stepped premiums look attractive, but at age 60 the cost may be several times the level-premium equivalent, exactly when income drops. A level term to age 65 matched to the mortgage, plus a trauma rider and waiver of premium, aligns cost with need.
Traps
Confusing trauma with TPD with death cover; assuming a nomination cannot be superseded; forgetting suicide exclusions (commonly 13 months) and the three-year contestability window; and recommending a joint policy when two single policies are needed for separate estate planning.