Figuring out your cover amount

Just like your favourite suit, life insurance needs to be tailored to your exact fit (give or take an inch). There’s no one-size-fits-all that you can squeeze or grow into. This means your cover amount can depend on what stage of life’s journey you’re up to as well as your personal situation.  

To work out how much cover you might need, there are a few things you should consider. Perhaps start by asking yourself why (or who) you’re getting cover for.

Why would I need life insurance?

If you have a spouse or a child, you already have at least one good reason to consider life insurance. When you add up the other important people that depend on you or things in your life, like your extended family, your home, and even your health, it’s not hard to see the value of taking out cover. Life insurance can help give you peace of mind, so you don’t need to lay awake at night worrying about the future (or how much sleep you won’t get).

Life insurance is a type of insurance cover – it protects you or your loved ones from financial losses that you didn’t see coming. But instead of covering an asset, you’re covering something priceless – your family’s financial future in case you passed away or became unwell.

In a somewhat unusually shaped nutshell, life insurance is worth considering because life is unpredictable.

Calculating the cost of being you

The best way to figure out how much life insurance you might need is to estimate your current and future living expenses. Don’t forget to account for any milestones your family will reach after you’re gone, like your spouse’s retirement or your children starting university or moving out.  

Some common reasons for Kiwis to take out life insurance include:

  • Keeping up with the mortgage: if you suddenly passed away or couldn’t work due to a terminal illness, your family may use the benefit paid to assist to continue to pay the mortgage on the family home. It may then continue to be a tangible reminder they can have of your hard work.
  • Making sure the kids are set: raising a team of kids is expensive when you add up education costs, everyday essentials like food and clothing, as well as any milestones they reach like graduation. You may have already planned these things in advance (you beaut), but those plans could need to be factored into the benefit amount required if your family was suddenly left without a carer or income provider.
  • Get a leg up with medical bills: some policies (like OneChoice Life Insurance) give you the ability to apply for optional cover for Serious Illnesses or Total & Permanent Disability (TPD), depending on underwriting. This can help pay for medical treatment to get you back to winning ways, or for any ongoing care or lifestyle adjustments you need to make.
  • Taking care of debts: aside from the mortgage, your family might have other debts to pay for like outstanding debt for a car or costs due to that recent home renovation.
  • How much received: when deciding how much cover to get, also consider how much money you or your family would receive from your super (including any life covers held through super), savings, the sale of any investments, your paid leave balance or employment benefits, and any support from your extended family.

If you need help deciding if you need life cover, and how much, our life insurance calculator can help give you a guide or you may also wish to speak to a financial adviser.

Not a numbers person? Our life insurance calculator can do the math for you

The financial side of your health

There are no re-dos or second chances when it comes to health. It’s not surprising that Kiwis rank their health and wellbeing as the second most important thing in life (beaten only by the importance of our families). So, how can we make sure our health is factored into our financial plans?   

If your OneChoice life insurance policy has the optional cover for Serious Illnesses or Total & Permanent Disability1, you can receive up to $500,000 (depending on age and life cover amount) for a defined Serious Illness and up to $1 million you if suffer a defined Total and Permanent Disability and your health hits a serious speedbump (available depending on underwriting). While it’s not always possible to find your health again after losing it, not having to worry about the ongoing costs of medical treatment, in-home care, or significant lifestyle changes can help keep your family’s plans on track.  

Determining how much you might need to factor in for your health is a little tricky since everyone’s risk factors are different. You’ll need to weigh up the likelihood of suffering one of the covered defined conditions in your policy and compare that to how much you or your family would be affected.

Keep in mind that taking care of yourself is a long-term game, which means you need to account for changes in the economy too. As inflation changes, so does the cost of medical treatment. The amount you need today for a particular treatment, will likely be different to the amount needed in a few years’ time, so you might want to get some help from a professional in calculating the future costs2 of treatments. Life Insurance can help take the stress away of having to worry about potential future treatment costs depending what is covered in your policy.

Is it dear? Find out here.

Can I have too much life insurance?

Too much of anything is never a good idea and life insurance is no different. The more cover you take out, the higher your premiums will be, so it’s important to balance your cover with the lifelong cost.

Here’s a quick breakdown of what you may consider at life’s most common checkpoints.

Single and strong

If you don’t have any financial dependents or you’re not worried about your assets being paid off if you passed away, you may want to only focus on any benefits or cover available to yourself, such as the optional Serious Illness Insurance or Total & Permanent Disability Insurance. Depending on underwriting you may be eligible to consider these covers in addition to your life cover.

Couples with kids

Couples may want to consider how their life (or death) could set off a much wider chain of events for their partner or children. Depending on the age of your kids, you may need to take into consideration years of ongoing costs like education and other necessities. If you have large financial commitments such as a mortgage, consider how much your spouse would be able to pay if they were on their own.

Older families

Are your children already close to financial independence? In that case, you may only need to factor in a few more years’ worth of expenses for dependents. You’ll also need to consider whether your partner would be happy to downsize or if they’d prefer to keep the family home if you passed away.

Cruising towards retirement

If you’re old enough to access your KiwiSaver or NZ Super, it’s important to factor this in also when considering life insurance. You might need to consider the amount of cover required and the cost to protect yourself or loved ones from any remaining debts or even (if eligible) potential injuries or illnesses as you get older, or to help your family with funeral costs after you pass away.

Need help doing the numbers?

Our life insurance calculator can be used as a guide to help you add up your financial needs over time. Just tell us a few bits of information about your lifestyle to see how much you might require. That being said, if you’d like a more personalised snapshot of your needs, it’s always best to speak to a financial expert.

  1. Optional Serious Illness and Total & Permanent Disability covers expire on the policy anniversary following your 65th birthday. Each event is defined within the policy and each claim will be assessed against these definitions.
  2. Understanding the time value of money — Investopedia

Make the call

If you’re keen for a chat, call us on 0800 005 819 from 8am to 8pm Monday to Friday. If you’re too busy enjoying life, we can call you instead, or why not request a quote now?