How-to keep control of the cost of your life insurance | Fidelity Life

Many of us are feeling the pinch of rising costs as prices seem to be spiralling everywhere. Whether it’s your groceries, energy bills, rent or mortgage, inflation is high and there’s no escaping it. When it comes to life insurance, many people choose to take out cover that’s age-rated. That means the cost of cover increases every year as you get older. This may explain why you just got a letter from your insurer about your price increasing. You can read more about why, here.

That doesn’t stop the thought or the feeling that it’s expensive or even wonder what you can do to control or reduce the cost of your life insurance. Read on to learn more about this and to consider what changes you could make, to make your life insurance affordable to your budget.

Why get life insurance in the first place?

Let’s rewind a bit to when you took out your life insurance policy. Chances are you did so to protect something that’s important to you – your loved ones, your home or livelihood – in the event of injury, sickness or death. But your circumstances today may be different and your protection needs may have changed.

What you can do to reduce the cost of your life insurance.

Life changes often and when it does, so should your insurance. It’s important to regularly review your cover – ideally every year with your financial adviser – to ensure it’s right for your ongoing needs. When you look back at the past 12-months, it’s likely all sorts of things have happened. Here are a few reasons you might want to consider reviewing your policy to ensure it’s up to date for your needs and what you can do to make life insurance affordable.

Remember before you make any changes to your life insurance cover, you should always speak to your financial adviser. They are best placed to understand your circumstances and matching that with suitable type(s) of cover for you, your needs and your budget.

If you don’t have a financial adviser, we can help you find one.

Find a financial adviser.

Has your mortgage reduced?

One of the many factors used to determine how much you pay for your cover, is how much you need to be covered for. Many New Zealanders choose to take out a sum to cover the total value of their mortgage, in-case they were to die. The money, from an accepted life cover claim, can be used towards helping pay off a mortgage and easing the financial burden for loved ones left behind.

If this was the reason you took out life insurance, it might be worth comparing the current value of your mortgage against the amount you’re covered for. If you’ve paid down your mortgage each month, you may find that you’re covered for more than you need. If you reduce the amount you’re insured for, this will reduce the cost of life insurance.

Any significant health changes in your lifestyle or smoking habits?

Your health and lifestyle are other key factors looked at when you take out life insurance, that help to determine the cost. You may have stopped smoking or had an improvement in an underlying health condition since you took out the policy. If you have, get-in contact with your financial adviser or insurer, this may reduce the cost of life insurance.

Are your wait & benefit payment periods set right for you?

Some cover types, like income protection or mortgage replacement cover, require you to select a claim waiting period and benefit payment period when you take out the cover.

A waiting period is how long you’ll wait to receive payments once you have met the claim definition. A benefit payment period is how long you’ll receive payments for. Your selection on these will affect the cost of your cover. For example, a longer wait period and a shorter benefit payment period will cost less but could leave you short on income if a sickness or injury persists longer than you’ve planned for.

This is something you should talk through with your financial adviser, to ensure you’re covered for what you need.

What does inflation have to do with my life insurance cost?

Another factor that can also impact how much you pay is the Consumer Price Index (CPI). CPI is a measure of inflation carried out by Stats NZ. It indicates increases in the cost of living for New Zealand households, that looks at changes in the prices of goods and services.

The most recent measurement (December 2022) indicates an annual inflation rate of 7.2%. This explains the pinch we’re all feeling and why we’re seeing costs go up, everywhere.

When taking out their life insurance, many New Zealanders choose to include CPI increases on their cover to help the value of their sum insured or monthly benefit, keep up with inflation changes.

If you chose the CPI Increase option for your policy, the plus side is that the sum insured/monthly benefit is increased to help protect the amount of cover against the effects of inflation over time. When the cover is increased the premium increases as well.

Each year at your renewal, you’ll be given the opportunity to accept or decline the CPI increase for the year. It’s another way to help control the cost of your life insurance.

What about cancelling or removing cover types?

Like with any change you make, you should first chat this through with your financial adviser, especially if you’re thinking of cancelling or removing cover(s) from your policy. Whilst it can seem attractive, helping you save some money today: you should chat to your financial adviser about what this means for the future you. Are all your needs and future risks covered, what are the trade-offs? Having an open an honest chat with your financial adviser about the pros and cons of this approach can help you work out what’s right for you.

When else should you review your life insurance cover?

Here’s a list of a few other reasons that might be helpful to review your cover. Remember when life changes, so can your cover.

Starting a new job or a having a change in your employment status.
Moving in with a partner.
Getting married.
Separating from your partner or getting divorced.
Buying a new home or investment property.
Becoming a parent or guardian or care giver.
Your kids are no longer financially dependent on you.
Increasing your mortgage or repaying part or all of your mortgage.
Going into business for yourself.

Speak with a financial adviser to make sure your cover is up to date.

To ensure your needs are met and that you have affordable life insurance to your budget, check-in with your financial adviser. They can have an open and balanced conversation if you were thinking of making changes or to help you to reduce the cost of life insurance. There’s usually no charge for a review.

DISCLAIMER: The information contained in this article is a summary of the key points of the insurance cover(s) mentioned and is general in nature. This article does not constitute a financial advice service. All covers are subject to the definitions, standard exclusions/limitations, terms and conditions contained in the full policy documentation which is available from Fidelity Life or your financial adviser who holds a Distribution Agreement with Fidelity Life. All applications for cover are subject to underwriting criteria.