How Much Life Insurance Do I Need in New Zealand?

There is no single right number. As a general guide, many New Zealanders look at enough to clear their mortgage and other debts, replace their income for the years their family would rely on it, and cover final expenses and larger future costs such as their children’s education. The right figure depends on your own debts, income, dependants and any cover you already hold.

What is life insurance meant to do?

Life insurance pays a lump sum to your estate or to the people you nominate if you pass away, and usually if you are diagnosed with a terminal illness. Its purpose is to replace the financial support you provide, so that the people who depend on you are not left with debts they cannot manage or a sudden gap in household income.

What should the cover amount take into account?

A common way to think about it is to add together your mortgage and other debts, an allowance to replace your income for a set number of years, final expenses such as a funeral, and any significant future costs like education. Many people then subtract their savings, KiwiSaver and any existing cover to estimate the gap that life insurance might fill.

Does the amount I need change over time?

Generally, yes. The cover that suits a young family with a fresh mortgage is rarely the same as the cover that suits someone whose mortgage is nearly repaid and whose children have left home. Many people review the amount after major life events, such as buying a house, having children, or a change in income.

Is more cover always better?

Not necessarily. Cover set higher than your situation calls for can mean paying for protection you may not need, while cover set too low can leave a shortfall at the worst possible moment. The aim is usually to match the amount to your actual commitments and what you can comfortably afford.

How do I work out the right number for me?

Because the calculation rests on your personal circumstances, many New Zealanders prefer to work it through with a financial adviser rather than rely on a rule of thumb. An adviser can help you map out your debts, income and goals and translate them into a cover amount that fits your budget.

You can read more about how life cover sits alongside other personal insurance on our personal insurance page.

The information in this article is general information only and is not intended as financial, medical, health, tax or other advice. It does not take into account any individual’s personal situation or needs. You should consider obtaining professional advice from a financial adviser and/or tax specialist in relation to your own circumstances and before acting on this information.