DATE: 27/01/2016
CATEGORY: Awesome news, Blog, Insurance, Life and Income Protection, Managing risk

how much insurance cover do you need?

Independent people have a game planIn New Zealand we have a culture of under-insurance. According to a recent report by the Financial Services Council, “New Zealand has the third lowest rate of insurance of 31 developed countries”.

How would you cope if you could no longer earn an income? Do you have a game plan in place to be able to pay your mortgage, and meet your financial commitments? What would you do if a serious illness stopped you from working for the next couple of years or longer. How would your family cope?

A good way of looking at insuring personal risk is to consider which category you want to fit into:
a) No cover
b) Some cover for some things say, just life cover but no trauma cover and no disability cover
c) Not enough cover but some for each event
d) All the bases covered.

Don’t put your head in the sand, or adopt a ‘she’ll be right’ attitude to risk. There’s too much at stake. Have a game plan.

how much insurance cover do you need?

How much cover do you need

Understanding how much cover you need, and determining the likelihood of needing to make a claim will help you choose the level of cover which is right for you.

As the image above shows it’s rare for people to suddenly pass away (for example in a car crash, or because of an undiagnosed health problem). Instead, the most common scenario for most people is a period of gradually worsening health, known as the “disablement process.”

How long this process will take is hard to predict. It could be for a relatively short period of time or take years. But whatever the time-frame what is certain is that each stage affects your ability to meet your financial commitments, such as paying bills, mortgage, etc. If you don’t have access to extra funds to carry you through, what is certain is that you’ll face some serious financial challenges.

how insurance works during this process

At each stage of the Disablement Process there is a type of insurance designed to provide financial assistance. For example health insurance helps with medical costs when hospital treatment is needed while life insurance pays a lump sum on death.

The types of insurance covers include: health, income/mortgage protection, trauma, total disablement, and life insurance.

what type and how much cover do you need?

The best strategy to ensure you have a good risk plan without breaking the bank is to make sure you have some cover for each stage, while at the same time keeping within your budget. You’ll also want to be mindful of current cost of care statistics should you need help.

Let’s take a look at the types of cover, benefits and claims statistics:

Awesome Mortgages Insurance

health cover – in case you need hospital treatment or major diagnostic tests

the risk: A major health problem can put your life on hold. And lengthy wait-lists can be fatal.

critical questions: What would you do if you faced a serious health problem? Could you afford major diagnostic tests? Would you be willing to wait for public health care? If you’d want to be able to get the treatment you need, at a time and place of your choice, then health insurance is the way to go.

peace of mind: Health insurance will help you get back to living, and gain quality advice and treatment quickly. A good health insurance policy will pay for 100% of the costs of private hospital treatment. It will also cover major diagnostic tests like MRI and CT Scans.

claims statistics: Common claim costs: Angioplasty $26,000 – $30,000; Brachytherapy $26,000 – $32,000; Mastectomy $16,000 – $20,000
(Sovereign, 2010)

Awesome tips! If your budget can’t stretch to full cover you can opt to take out “major medical” health insurance, rather than cover for GPs, Dentists, etc. Selecting a higher excess also reduces monthly premiums and it’s often the larger health related costs which you’ll most likely want to cover.

Prue and Kyle’s story: “our world was turned upside down”

Age: late 20’s
Insurance: medical
Claim: breast cancer

Prue and Kyle were living the Kiwi dream. In their late 20’s they’d travelled the world together before deciding to return to Auckland to get married and purchase their first home.

Month’s after celebrating their first wedding anniversary their world was turned upside down when Prue discovered she had breast cancer. Suddenly their future seemed so uncertain. “I was overwhelmed with worry. I was just so scared.”

After coming to terms with the shock diagnosis, Prue and Kyle felt some peace of mind knowing they had medical insurance to assist them through this stressful time. “The fact that we had insurance was just so brilliant because my doctor said to me, ‘we can refer you to a specialist through the public system or you can go private,’ and we said, “well we’ve got insurance, let’s use it.”

They were able to meet with the oncologist that same day and for the first time since the diagnosis, they felt in control. With the help of their adviser and their claims specialist the whole claim process was quick and hassle-free.

She is now recovered, and all up her treatment cost over $100,000. instant access to quality treatment, and not having financial stress were major factors in her recovery. Her advice to others, “Be as prepared as you can be and don’t always think it will happen to someone else, because it may be you.”

“It’s just one of those things you’ve got to plan for, ” adds Kyle. “You insure your car, you insure your house – your health is one thing you’ve got to take care of as well.”

(One in nine woman will be diagnosed with breast cancer at some stage of their lives, according to the New Zealand Ministry of Health.)


income protection / mortgage repayment cover – in case you are too sick to work.

the risk: You are too ill to work. Along with your health, your ability to earn is probably the biggest asset you have. In the event of an accident ACC might pay, however in the event of sickness there is no ACC available.

critical questions: What would you do if a serious illness or accident stopped you from working for the next couple of years or longer? How long would you survive if you were unable to work, and who else in your family would this affect?

peace of mind: Income protection provides you with a monthly benefit that replaces a percentage of your income, so you can keep on top of any debts and meet your living costs. A mortgage repayment policy is an alternative which simply covers your ongoing mortgage repayments.

claims statistics: Common causes of claims include: Mental health issues, Neurological issues and Cancer (Sovereign, 2010)

Awesome tips! Income protection should be a critical component of your risk plan, especially when there a 100% reliance on your income to pay bills, mortgage, etc.

With an agreed value policy the value of the claim payment is agreed based on your income at the time the application for cover is made. This is the amount regardless of your actual income at the time of claim. The claim payment is based on 55% of your income and there is no tax to pay. Because of the certainty provided, agreed value is our most recommended type of income protection.

The choice of wait periods (the time between making a claim and payment) can be 2, 4, 18, 13, 26, 52 or 104 weeks. If you would be able to survive for a couple of weeks or more without income the premiums significantly reduce for longer wait periods. For example, if you could tread water for 4 weeks premiums reduce by more than 100%.

Premiums further reduce for a benefit period (the length of time insurance company will make your claims payments for) of two or five years. But given how important your income is to your plans and lifestyle we strongly recommend a benefit period to age 70.

Helen’s story: “life can change in an instant.”

Age: mid 30’s
Insurance: income
Claim: chronic fatigue syndrome

Following the death of her husband, Helen, now a sole parent, had already learnt that it was important to have insurance to provide for her children if she died, but she had never been sick or suffered an injury.

“My instant reaction was ‘no way, I’m not wasting that much money,” she said when she was advised protecting her ability to earn an income was essential now that she was the sole breadwinner.

A year after taking out income protection insurance, Helen was diagnosed with Chronic Fatigue Syndrome. When her claim was accepted she was hugely relieved to be able to focus on her recovery without the added stress of worrying about her finances.

“If I hadn’t had the security of my regular insurance payments I would have lost my house, and my children would have suffered a drastic change in their life style.”


trauma cover – in case you suffer a major health condition.

the risk: You suffer a major illness, such as cancer, heart disease or a stroke, can be sudden (and traumatic) and will definitely have a huge impact on the way you live. You will require time off work, you may need special equipment and expensive readjustment costs.

critical questions: If you suffered a trauma condition how would you and your family cope with the financial impact? If you were to suffer a major health condition how would this affect your ability to work and to afford a living for your family. How would an illness affect your ability to meet your mortgage, bills, and other fixed commitments?

peace of mind: Trauma Cover pays a lump sum if you suffer a condition covered by the policy. A good trauma policy will cover over 30 major health conditions, with most claims coming from “the big three” (serious cancer, heart disease & stroke).

This lump sum payment will help you survive financially while you take the time you need to recover. You can choose to use the money for example to pay off your mortgage, make alterations to your house to improve access and mobility or explore alternative treatment options and expensive treatments not funded by Pharmac.

claims statistics: Common causes of claims: Cancer, Cardiovascular, Neurological (Sovereign, 2010)

Awesome tips! Before making a decision regarding your level of cover it may be helpful to consider what you would use this money for. In addition to the above examples you could also use the money to offset lower levels of income returning to work following a critical illness, creating cash for an emergency fund or cash reserve or to boost retirement savings.

Rose’s story: “nothing is more important than your family and health.”

Age: mid 30’s
Insurance: trauma
Claim: spinal tumor

Although a little dubious about insurance, when Rose and her husband and their children immigrated to New Zealand, protecting their family was a key priority.

They decided to take out life and trauma cover so they could have piece of mind that financially everything would be taken care of in the event that one of them fell ill or passed away.

“When you have a young family you need to look after them come what may. We’ve worked hard for this Kiwi lifestyle and we can’t afford to put that in jeopardy,” her husband said.

After suffering lower back pain, an MRI scan revealed a tumor in her spine. The claims team confirmed that she would qualify for a Trauma Claim after she had surgery to remove the tumor. Unfortunately she had not taken out medical insurance so she had to rely on the public health system and join the waiting list. It took three months before she was able to be operated on.

However, while recuperating Rose and her family were relieved to receive confirmation of her trauma insurance – a claim payment of over $106,000. Rose and her husband decided to use the payment to help them purchase their first home and provide for quality family time.

total & permanent disablement (TPD) cover – in case you are totally and permanently disabled, and/or never able to work again.

the risk: You’re unable to ever work again. Think of it as ‘financial death’ – you’re still alive, but the impact on you and your family would be crippling and life changing.The ability to pay for living costs, mortgage payments etc.and the added burden of the cost of care makes it harder for you and your partner to rebuild your financial life.

critical questions: If you were permanently unable to work, what would the financial impact be and how would you and your family cope?

peace of mind: Total & Permanent Disablement (TPD) Cover pays a lump sum in the event that you’re totally and permanently disabled and unable to ever work again.

claims statistics: Common causes of claims: Cancer, Neurological and Musculoskeletal (Sovereign, 2010)

Awesome tip! If you’re considering taking other insurance cover to provide regular  income over a longer term (e.g. income protection), balancing cover against monthly premiums being affordable, opt for a lump sum payment to enable you to be mortgage free.

life cover: in case you die (or are diagnosed with a terminal illness)

the risk: You die (or are terminally ill). Financially this could be disastrous for those you leave behind, compounding the obvious emotional stress at such a difficult time.

critical questions: If you were to suddenly die, what would the financial impact be on loved ones? Would they be able to cope with responsibilities like debt repayment and living costs? If you were given a terminal diagnosis would you have access to additional money to fast-track medical treatment or to pursue holistic forms of treatment?

peace of mind: Life Cover provides a lump sum payment in the event of death, or a terminal diagnosis. This lump sum can help reduce debt, pay for final expenses, create an investment fund to generate in going income, enable business ownership to be restructured, provide an education fund or inheritance, pay the cost of pursuing alternative treatments, among other things. The purpose of the funds is entirely yours to decide.

claims statistics: Common causes claims: Cancer, Cardiovascular, Accident
(Sovereign, 2010)

Awesome tip! To determine the best amount of Life Cover decide what you want any insurance money to be used for. For example, to enable those you leave behind to be mortgage and debt free, or pay for your children’s education, to provide for child-care, to have money at hand to enjoy a trip of a life-time etc.

Michael’s and Sarah’s Story: “The months I was given to live turned into years.

Age: early 40’s
Insurance: life, medical and total and permanent disablement
Claim: lung cancer

Michael and Sarah met while they were 18, and spent their early years travelling together and enjoying their shared passion for the arts. After their marriage she became a lecturer in English Literature and later a full-time poet. And Michael pursued a career as a lawyer.

They were enjoying parenthood, raising their two young sons, and looking forward to the birth of their daughter, when Sarah experienced a progressive shortness of breath during the last stages of her pregnancy.

At 28 weeks pregnant Sarah, a fit non-smoker, was diagnosed with stage-four lung cancer. Her daughter was delivered safely, but Sarah was given just month’s to live.

Still coming to terms with the shattering news, they at least had peace of mind knowing that their comprehensive insurance would provide for Sarah’s treatment and changes to their life style.

Because Sarah’s diagnosis was terminal her insurer paid her full Life Cover benefit immediately. Her Major Medical Cover provided for private and immediate medical tests and procedures, including chemotherapy.

Sarah was determined to give it her all to survive. She and Michael used some of the early Life Cover payment to seek other drug therapies, and alternative treatments including: acupuncture, reiki, meditation, psychotherapy and an extreme diet.

The months she was given to live turned into years. Sadly, her health then began to deteriorate.

Sarah also  had Complete Disablement Cover, which was payable when she became very ill and unable to work, and daily life with a young family was becoming more challenging.

With the help of their insurance, Michael was able to take more time away from work to be with their children.

“The combination of the insurances we had in place was such a help. When you have so much to worry about, it’s nice not to have to think about the money. You can just get on and do what you need to do.”

A little over five years after her diagnosis, Sarah passed away. She survived long enough to see her daughter go to school.

(Fact: One in eight males and one in 12 females over the age of 30 will die before they reach age 65, Statistics Zealand)

To find out how much insurance you really need get free, independent, tailored and obligation-free advice. Click here and tell us what’s most important to you – your biggest concerns and highest priorities.


(*real stories from OnePath Insurance; images stock photos)

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Posted in Awesome news, Blog, Insurance, Life and Income Protection, Managing risk

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