Increasing concerns for underinsured life insurance in New Zealand

7 Mar, 2023

Underinsurance is fast becoming a concern, with many New Zealanders opting out of the financial protection of life insurance.

Financial Services Council’s (FSC’s) latest research report, Money and You – Taking Cover, reveals in a representative survey of over 2,000 New Zealanders that around 70% of them are underinsured, leaving their families and dependents in a vulnerable position.

Only 11% of respondents reported having income protection insurance, 14% have total and permanent disability insurance, and 18% have cover for trauma or critical illness.

While respondents reported greater uptake of life insurance (38%) and health insurance (32%), an overwhelming percentage of the population is not covered should the worst happen to them.

So, why is there a trend of uninsured New Zealanders? And how important is life insurance?

What is life insurance?

Life insurance is a type of insurance policy that provides financial protection to individuals and their families in the event of the policyholder's death. Policy beneficiaries can receive help to cover funeral expenses, outstanding debts, living expenses, and many other benefits, which will be addressed below.

Life insurance policies currently available in New Zealand mainly cover personal risk, most commonly in the form of insurance that includes cover for a specified term. They are predominantly distributed through financial advisers and banks.

Many variations of life insurance and living insurance products are available in New Zealand. Insurance companies create products and benefits that can be sold separately or bundled together into their own insurance products.  These are commonly grouped as follows:

  • Life Insurance
  • Living Insurance
  • Critical Illness

However, these traditional product offerings fall within a relatively unique ecosystem. The New Zealand life insurance industry works within an environment which includes the following;

  • Accident Compensation Corporation (ACC)
  • KiwiSaver
  • NZ Superannuation (NZ Super)

  All of these provide a type of Insurance for New Zealand citizens and residents.

Certain life insurance policies in New Zealand may offer coverage for critical illnesses, such as cancer or heart attacks, and permanent disabilities. These types of coverage, known as trauma cover and permanent disability cover, can provide financial protection in the event of a serious illness or injury.

Why you should consider life insurance

Here are a few reasons life insurance is essential for anyone with dependents or financial obligations. The benefits of life insurance, according to the OECD (Organisation for Economic Co-operation and Development), are as follows:

  •  Financial security: Life insurance can provide financial security to policyholders and their families in the event of death.
  • Protection against financial loss: Life insurance can help protect against financial loss due to the death of a breadwinner.
  • Estate planning: Life insurance can be used as an estate planning tool to help pay estate taxes and ensure that more of a person's assets are passed on to their beneficiaries.
  • Income replacement: The death benefit from life insurance can help to replace lost income in the event of the policyholder's death.
  • Flexibility: Life insurance policies can be tailored to meet individual needs and circumstances, offering flexibility in coverage, premiums, and more.
  • Peace of mind: Having life insurance can give policyholders peace of mind, knowing that their loved ones will be cared for in the event of their death.

 Why is it concerning that New Zealand is underinsured

Despite the many benefits of life insurance, many New Zealanders are underinsured. 

According to data from the OECD, the life insurance penetration rate in New Zealand was just 51.3% in 2020, compared to an average of 68.7% for the OECD countries overall. This means that just over half of New Zealanders have some form of life insurance coverage, leaving the other half without any financial protection in the event of their death.

This frightening lack of life insurance coverage is particularly concerning given the increasing costs of living in New Zealand. The cost of housing, healthcare, and other necessities has been rising in recent years, putting a strain on many households' budgets. This, in turn, has led to many households taking on more debt, making it even more important to have life insurance coverage in place.

The underinsurance problem in New Zealand is compounded by the fact that many New Zealanders are unaware of the importance of life insurance or the different types of life insurance coverage available. For example, some people may think they don't need life insurance because they are young and healthy or because they believe their family can get by financially without their income.

With the availability of support through ACC, KiwiSaver and NZ Super, coupled with our robust public health care system, there is some complacency around life insurance observed in New Zealand not seen in other countries. There is the belief that the Government will provide financial support during life-changing events. According to recent research by the Financial Service Council, this has resulted in underinsurance, which follows a global trend but is impacted by a unique culture around insurance in New Zealand.

However, the reality is that no one knows what the future holds, and unexpected events such as serious illness or accidental death can happen at any time.

AMS offers a solution for managing life insurance in New Zealand.

To help ensure that your customers are financially protected, let us make things easier as AMS provides a reliable and trustworthy Insurance Policy Management Solution that currently assists our customers in managing over 500,000 policies seamlessly. Our customers are at the forefront of the life insurance and bank insurance sectors in New Zealand, including well-known global brands. 

We are extremely proud of the collaborative relationship we have with all our customers, many of which span several decades.

The AMS Insurance Management solution can manage a wide range of life insurance products, including legacy products.

We have provided life insurance policy management software and services for over 30 years. Behind the scenes, our solution supports managing all contemporary life insurance products and benefit types, including modular products, which can be mixed and matched to meet customers’ current and changing needs. 

Life insurance policies quite literally last a lifetime, and the AMS software is designed to support their management for the long term. It provides peace of mind to those issuing the policies that you are meeting your legal commitments while making it as easy as possible for customers to keep policy details updated. It also requires a highly secure and compliant data environment to meet the demands of an equally highly regulated industry.

Contact us today to discover how our product can change the way you do business, or download a pdf of our AMS Insurance Policy Management Overview. 

As we continue to innovate and grow – we hope you choose to grow with us too.