A Kiwi Perspective: Is Life Insurance Really Necessary?

You’ve got those bills to sort, mouths to feed, cars to fill up, and all those health and auto insurance premiums to pay. Life insurance? Well, it’s just another expense, and who’s to say if you’ll ever really need it, aye?

Or perhaps you’re young, fit as a fiddle, and the only one counting on you is Bruce, your trusty dog. Why on earth would you even think about life insurance? A fair question, bro.

We’ll give it to you straight: Getting the right life insurance is pretty essential in the first scenario, but likely not so much in the second. If you’re not quite sure why, no worries, we’ll break it down for you.

Why Consider Life Insurance?

The whole point of life insurance is to replace your income when you shuffle off this mortal coil. If there’s no one relying on that income when you’re gone, then you’re probably in the clear without life insurance. If you’re financially sorted enough that you’re basically self-insured, you can carry on without it as well. But if you’ve got kiddos and a significant other (or even just one or the other—or anyone else) who’d be financially strained if you were to kick the bucket, then you should definitely be looking into life insurance. And there’s a particular type you should be eyeing up, so keep reading.

What’s the Deal with Term Life Insurance vs. Whole Life Insurance?

Now, you might be thinking, “It’s all life insurance—how different can they be?” Well, hold on to your jandals, because they’re actually very different. The gap between term life and whole life insurance is bigger than the gap between a hearty bowl of homemade kai with a generous serving of pork belly and a 50-cent instant noodle pack—except the instant noodles cost five times as much as the real deal.

Let’s break it down:

Term Life: This one’s simple. Term life insurance covers you for a set period (usually 10 to 30 years) and comes with a fixed premium (especially if you go for the straightforward level premium term life, which we highly recommend). If you happen to meet your maker during the term, your loved ones get a payout (the amount you chose when you bought the policy—typically $500,000 to $1 million).

Whole Life: This one’s a bit more complicated. It sticks with you throughout your life and pays out when your gone. It also has an investment component (aka cash value) that you can dip into while you’re still kicking. But when you’re six feet under, that money’s off-limits. If you don’t use the cash value while you’re alive, it’s game over, mate. The insurance company takes it all.

So, as you can see, whole life insurance is a real handful. It’s trying to be both insurance and an investment, and that’s not a good combo. Your insurance should do one thing and one thing only: replace your income if you cark it so your loved ones aren’t left in the lurch.

Now, it’s like this: No one goes to an Italian restaurant expecting a top-notch burger. That burger at the bottom of the menu will probably be mediocre at best. Same deal with life insurance. Whole life insurance does a lousy job of growing your money. Returns are usually rubbish, and even if you do manage to scrape up some dough, the company gobbles it up with fees. And remember, in case you missed it earlier, if you kick the bucket before using that cash value, they swipe the lot. Yup, when you’re six feet under, and your whānau’s grieving, the whole life insurance companies roll up and walk off with every cent you put in, leaving your loved ones with just the fixed death benefit.

So, when it comes to life insurance, keep it simple. Go for term life and leave the whole life shenanigans behind. Your wallet—and your whānau—will thank you for it.