Life insurance buying guide

Find out how to choose the right life insurance, how much your cover might cost, plus which companies have the most satisfied customers.

Family on beach

Do you need life insurance? What types of cover are there? We explain.

Do you need it?

Most people with dependants need some life insurance – just in case the unthinkable happens.

At a minimum, life insurance should cover your debts, funeral expenses, full repayment of your mortgage (including any early-repayment fee), and your family's immediate living costs.

As well, you should add in the amount required to replace a lost income, or pay for a caregiver, until the surviving family is no longer dependent on support.

Who are your dependants?
Life insurance isn't just for financial dependency. Consider the ways that you contribute to your family, and what you'd need to compensate for the loss of that contribution. This includes caregiving and childcare as well as financial support. It could also include the support you give to elderly relatives.

Our calculator provides an estimate of how much cover you need.

Policy types

The most common types of life insurance are term life and whole-of-life:

  • Term life insurance pays you or your chosen beneficiaries the sum assured if you’re diagnosed with a terminal illness or die within the period set out by the policy.
  • Whole-of-life insurance lasts for life provided you keep paying the premiums. Whole-of-life policies are more expensive than term life policies.

As well as providing cover in the event of death, term life insurance policies usually have other built-in benefits. Five of the most common include:

  • Terminal illness cover: you can get an advance on all or some of your sum assured if you’re diagnosed with less than 12 months to live.
  • Funeral costs cover/bereavement support: your policy’s beneficiaries can apply for an advance to cover immediate costs such as funeral expenses.
  • Children’s funeral costs cover: you get a limited payment to cover funeral costs if your child dies from accidental injury. Some policies also cover death from certain illnesses.
  • Increase sum assured for major events: you can increase your sum assured without having to provide further medical information if you experience a major life event. Although it varies from policy to policy, common events include getting married or divorced, having children or taking out a home loan.
  • Financial advice cover: you or your policy's beneficiaries can get financial advice (up to a limit) if the insurer pays out the sum assured.

Tip: Keep your policy schedule in a safe place alongside your will. Let your family know you have a policy.

Premium structures

Life insurance premiums can be structured in different ways:

  • Yearly stepped premiums increase each year in line with your age.
  • Stepped term premiums increase by a set amount after a fixed period of time (for example, 5% after five years).
  • Level term premiums are fixed for a set period (for example, 10 years or until the age of 80). Typically, the premiums start out more expensive than yearly stepped premiums, but they may eventually prove cheaper as they don’t increase year-on-year.
  • Premium freeze options decrease your sum assured bit-by-bit rather than increasing your premiums.

If you’re interested in yearly stepped premiums, before signing up ask your insurer to give you a schedule of premiums for the next 5 or 10 years. While the schedule isn’t guaranteed, it’ll give you an indication of the amount you’ll pay over time. You can use the schedule to compare yearly stepped premiums against level term premiums for the same policy.

Full disclosure

When you take out life insurance, your insurer relies on information you provide to calculate your premiums and the terms of your cover. You have a duty to disclose material facts that would influence the judgement of a prudent insurer. Material facts may relate to your age, your medical history, and whether you smoke.

If you understate your age, your insurer is entitled to reduce its liability to reflect the lower premiums you paid. If you fail to disclose other material facts, your insurer can alter the terms of your cover, cancel a benefit or “avoid” (cancel) your policy entirely. Your premiums may not be refunded if your policy’s avoided.

The upshot is you need to be careful when applying for, or renewing, your life insurance.

Life insurance cover calculator

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Adviser commissions

Some financial advisers selling life insurance could be putting quantity of sales before quality of advice, an investigation by the Financial Markets Authority (FMA) has found. And it’s consumers who’ll ultimately foot the bill.

In May 2015, the FMA compelled 12 insurers to hand over four years of life insurance data. The data showed advisers who were paid an upfront commission for selling life insurance were more likely to switch their clients to new policies after only a few years.

This practice allowed advisers to increase their income and receive bonuses, such as overseas trips. But it also increased industry expenses, which are likely to be passed on to consumers as higher premiums.

Worryingly, the FMA found the quality of a policy was only a minor consideration when advisers upsold clients. “This suggests that some advisers are acting in their own interest, rather than in consumers’ best interests,” the report stated. Learn more.

Which company has the most satisfied customers?

Our advice

Here's our advice for before and after you have life insurance.

  • Shopping for cover: get at least 3 quotes. Premiums can differ by hundreds of dollars. Ensure any pre-existing medical conditions are covered.
  • Ask your insurer if there's anything in the policy you're unsure about, and get them to explain it to you. Make sure you do this before you sign.
  • When you have insurance: keep the policy in a safe place - where your will is kept, or with your lawyer - and let your partner or family members know about it.
  • Every few years, review how much cover you need, particularly after major life changes such as marriage or divorce, having children, or children leaving home and becoming independent.
  • If you are changing insurers, don't cancel your old cover until you have been confirmed as a customer of the new insurer.

Member comments

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andrea h.
31 Dec 2019
Life Insurance Discrimination

I would love Consumer to investigate Life Insurance discrimination. My husband is a very well controlled, healthy type 1 diabetic. We have tried many insurance companies to get life insurance for him. The very few companies say that yes, put so much “loading” on the premium that the cost is simply ludicrous and unaffordable. We lived briefly in Australia and note that they have a ruling that they can not refuse to give life insurance because of a health condition - and they can not put a loading on the premium because of a health condition such as diabetes.

Consumer staff
06 Jan 2020
Re: Life Insurance Discrimination

Hello Andrea,

We're sorry to hear about this. I have passed your query over to our research team for them to consider.

Kind regards,

Natalie - Consumer NZ staff

Nina S.
09 Mar 2020
Very high loading for Type 1 Diabetic

Totally agree with Andrea.

We have a similar situation with insuring a Type 1 Diabetic, and we are being ripped off as well. The diabetic partner in our household pays premiums that are 1.86 times higher than what the non-diabetic pays. And, on top of that, the amount of cover REDUCES every year.

We feel we have little choice but to cancel the Life Insurance and put the money to better use.

Consumer, please look into this behaviour and see what can be done to make the system more fair.