You’ve got a young family, maybe a new home, or a flourishing career – you have your whole life ahead of you. Probably the last thing on your mind is not being around to enjoy any of it.

You can’t control everything in your life, but you can make provision for your loved ones to have some financial stability if something were to happen to you by taking out a Life Insurance policy.

But what is Life Insurance and how does it work? And when do you really need it? The team at Cigna New Zealand answered our questions to provide some guidance.

What is Life Insurance?

Life Insurance can be a financial safety net that is intended to provide for those who depend on you if you were to pass away. It’s one form of security that could ensure your loved ones don’t get caught short, if you were no longer there to support them.

Upon your death, a tax free, lump sum is paid out to your estate. This money may be used by your family towards the cost of the funeral, to help settle a mortgage, or to generally support your whanau in the years to come.

No one wants to be struggling with finances while they are grieving. The payout from a Life Insurance policy can help your family to maintain their standard of living after you’re gone.

Why is it important and who needs it?

Did you know that the average age of a new parent is 31, but the average age someone takes out a Life Insurance policy is 40? That’s a worrying trend that is potentially leaving some young families vulnerable if the unthinkable were to happen.

Unexpectedly losing a loved one can be a traumatic time for a family. Emotionally there’s a lot to process; not to mention there’s the funeral to plan and pay for, mortgage payments to be made, bills to be paid, and ongoing household expenses. Life Insurance provides peace of mind now and for the future.

It’s not only important for the main income earner to be covered by a Life Insurance policy. The loss of a parent could mean that the partner left behind is unable to work as they need to look after young children. If there are people in your life who depend on your income, or your presence, Life Insurance could provide stability for them – whether that’s your kids, a significant other, aging parents or the wider whanau.

It’s usually a big life change that prompts us to consider Life Insurance, such as buying a house, having your first child, starting a business or getting married. After all, if you were no longer around, how would your dependents look after the mortgage, schooling, business loans or other debt?

How does it work and how much does it cost?

The first step tends to be determining how much cover you may need, ie the amount that will be paid out. Ask yourself how much money your family is likely to need if you were no longer there to support them. Establishing this first could prevent you from selecting too much or too little cover. As cover is so personal, the recommended level of cover will vary between people. Check out how much cover you may need with Cigna’s Life Insurance Calculator.

Things to consider when determining your cover:

• Funeral costs
• Mortgage or housing payments
• Other debt
• Income replacement
• Day-to-day household expenses
• Childcare

It’s important to compare Life Insurance options thoroughly, to find the right insurance provider for you. The insurer may ask for information on your medical history and your premium will be calculated.

The cost of a Life Insurance policy is different for everyone as it’s influenced by your selected cover, personal health history and other policy additions you may opt for.

Once the policy has been finalised, you’ll pay the agreed premium to your insurer on an ongoing basis, usually monthly. Your life will be covered from the date your policy starts. This means that you will have peace of mind that your family is covered from the moment your cover is confirmed. Paying your premiums at the agreed time is critical to ensure you’re always covered.

When the policyholder (the person that is insured) passes away, or is diagnosed with a terminal illness, the insurer may pay out the agreed lump sum to the estate of the policyholder, dependant on the terms of the policy.

Can I trust my Life Insurance provider to give me good advice?

The Reserve Bank of New Zealand (RBNZ) and Financial Markets Authority (FMA) recently published a review on the conduct of New Zealand’s Life Insurance industry, highlighting that some providers aren’t actively providing the best service for their customers’ needs. Given the results of this report, it’s understandable that Kiwis are wary of insurance providers. It’s a commitment, after all.

This article was written by Kidspot NZ with information provided by Cigna New Zealand.