When do I need life insurance?

Hey all, Andy here today.

Here’s a question Em and I faced recently:

When do I need life insurance?

We got married almost a year ago now, and recently bought a house. These significant life events got us thinking about protecting ourselves financially. We’d kinda avoided getting this type of insurance before, it just seemed like another bill that we didn’t need.

Some of you might be fortunate enough to have insurances like this covered as part of when do I need life insuranceyour employment package. That’s awesome! Don’t click away from this article just yet though, do you know exactly what you’re getting?

If you’re like us, this will be an extra expense to take on, which can seem crazy when you’ve got debts and bills to pay, but what would happen to those debts and bills if something were to happen to you? Getting insurance like this is all part of living smarter, and creating a debt free future for your family.


What will life insurance cover?

If you pass away or are diagnosed with a terminal illness, you or your nominated person/people will receive a lump sum payout. The amount of the payout will depend on how much your premium is and what your circumstances are: you should discuss this with your family, financial advisor and/or insurer. In NZ, a common amount to insure yourself for is $1.5 million.

Whatever it is, you’ll want to make sure your payout will cover any debts (particularly mortgage), any living expenses for those you leave behind (how much and for how long is another conversation to have with family and insurance company), and your funeral. I know it sounds a bit morbid, but do you want your family to have to deal with these things if you’re suddenly not there one day?


Basically, if you have any significant financial commitments, you should consider getting life insurance.

When you get a mortgage

Who will be left to pay off the house? Can your partner pay it themselves? If you’re the sole person responsible for it, what will happen there? You’ll want to make sure your mortgage will be covered off by your insurance.

When you have a child

when do I need life insurance

Is your family covered?

If you can’t provide for your child any more, who will? Again, if the other parent is around can they handle this alone? Living costs for those you leave behind is one of the most important parts of the insurance policy.

If you have your own business

Could the business survive without you? What about all those invoices coming in? Would the business go under if you suddenly weren’t there?

Whenever you can!

We just don’t know what life is going to throw at us. Touch wood this won’t happen to any of you, but what if you got diagnosed with cancer or had a heart attack tomorrow? It’s a lot easier to get insurance before the unthinkable happens.


Understand the terms and conditions

This will save any nasty surprises and disappointment if the policy ever needs to be invoked. The major things to look out for first are:

  • If required, when would a payout be made? This is particularly the case for if you’re diagnosed with a terminal illness: many policies will pay out when you’ve got less than 12 months to live. But what if you can’t work for 18 months?


  • Will the payments increase as you get older, and can you afford that?


  • Can you reduce payments or cancel the policy if you need to for whatever reason?


  • Is the cover you’re paying for enough to take inflation into account? This doesn’t matter so much for your mortgage, because this will just be wiped. But it will have an impact on living expenses.


Other insurance to consider

There are other types of insurance you will need to consider, too. We’ll cover these each in their own posts in the near future.


Do you have cover for medical bills? What if you need expensive emergency dental work, or need a knee replaced and don’t want to wait a year on the public system (in NZ, anyway!)

Income protection/mortgage protection

What if a serious medical event happens that isn’t life threatening, but means you can’t work? Your life insurance policy won’t pay out here, so you’d want to make sure you were still covered. This scenario is far more likely to happen to you, but it is the insurance that is most often overlooked.


Do you have life insurance? Got a particular recommendation for your fellow readers? Leave us a comment below.


Happy downsizing,


andy downsize your debt






image 1 credit: TaxRebate.org.uk, image 2 by Andreas Schalk, CC 2.0, https://flic.kr/p/q2QHJk

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