Why Life and Health Insurance May Be the Wisest Investment for Your Future
Life and health insurance can help protect your financial future when unexpected illness, injury, or loss occurs. Having the right coverage may help reduce financial stress, protect your loved ones, and provide greater confidence as you plan for tomorrow.
A practical guide for individuals who want to protect their health, income, family, and long-term financial plans
When we hear the word “investment,” we often think about KiwiSaver, property, shares, savings accounts, or building a business. But there is another part of financial planning that deserves attention: protecting what makes those financial goals possible in the first place.
Your ability to earn an income, look after yourself, meet your financial commitments, and support the people who rely on you can be among your most important financial assets.
That is where insurance comes in. Insurance is designed to transfer some of the financial risk associated with unexpected events. New Zealand financial education resource Sorted describes insurance as a way of protecting yourself and your whānau from potentially significant financial losses when unexpected events affect your health, ability to work, or belongings.
So while life and health insurance are not “investments” in the traditional sense of being products you purchase expecting their value to grow, they can be valuable investments in financial resilience and certainty.
Here is how to decide what role they should play in your future.
First, Understand What You Are Actually Protecting
Before looking at policies, premiums, or providers, take a step back.
Ask yourself:
What would happen financially if my health or income suddenly changed?
Think about everything your current income supports:
Rent or mortgage payments
Groceries
Power and household bills
Transport
Debt repayments
Children and other dependants
Savings goals
KiwiSaver contributions
Lifestyle expenses
Long-term plans
Savings can provide an important safety net, but a major illness, disability, lengthy period away from work, or death can create financial consequences well beyond a typical emergency fund.
Insurance helps you transfer some of that risk to an insurer in exchange for a premium.
The Financial Markets Authority notes that where people depend on you financially, insurance may be needed to help protect them.
Life Insurance: Protecting the People Who Depend on You
Life Insurance is generally designed to provide a financial benefit when the insured person dies, subject to the terms and conditions of the policy. Its real purpose is not about putting a monetary value on somebody's life.
It is about helping manage the financial consequences of losing that person. Sorted explains that life insurance can help families with financial pressures such as paying off a mortgage and meeting additional costs such as childcare after the death of an income earner.
Who should consider life insurance?
Life Insurance may be particularly worth investigating if:
You have children or other dependants.
Your partner relies on your income.
You have a mortgage or significant debt.
You financially support parents or relatives.
Your household would struggle if your income disappeared.
You want to provide additional financial security for the people you leave behind.
Even someone who does not earn the majority of a household's income can have substantial financial value.
For example, consider a parent who provides childcare, transportation, household management, and other unpaid responsibilities. If that person were no longer there, some of those responsibilities could create new costs for the household.
A useful question to ask
Rather than simply asking:
“How much life insurance should I buy?”
Start with:
“What financial responsibilities would remain if I were no longer here?”
That question can lead to a much more realistic assessment of your needs.
Health Insurance: Protecting Your Options When Health Changes
Individuals have access to a public healthcare system. Private health insurance can serve a different role by helping cover eligible private healthcare costs, depending on the policy selected.
Policies can differ significantly, so you should never assume a particular treatment, specialist appointment, diagnostic test, or procedure is covered simply because you have “health insurance.”
Read the policy wording closely.
Sorted specifically recommends comparing quotes and carefully checking what is and is not included before buying insurance.
Why might someone consider health insurance?
For many people, the question is about financial flexibility.
Imagine that an unexpected health problem appears at the same time as you are:
Paying a mortgage
Raising a family
Building an emergency fund
Managing debt
Saving for retirement
An additional medical expense could put pressure on several financial goals simultaneously. Insurance may allow you to transfer some eligible healthcare costs to your insurer, according to your policy. The important words here are“according to your policy.”
Every policy has its own coverage, conditions, exclusions, limits, and other requirements. Understanding these details is essential before committing to cover.
The Bigger Issue: Protecting Your Ability to Earn
One financial risk people may underestimate is losing the ability to work.
For most working individuals, future earnings could represent a substantial part of their long-term financial resources.
Sorted points out that it can be difficult to meet normal living expenses if illness prevents you from working. It also notes that ACC covers loss of income from an accident, not illness.
This is why a broader protection conversation may also include products such as:
Income protection insurance
Designed to replace a portion of income in qualifying circumstances when you are unable to work, subject to the policy's conditions.
Trauma or critical illness insurance
This type of policy can provide a lump-sum payment when the insured meets the policy definition for one of the covered serious illnesses or conditions.
Total and permanent disability cover
This can provide financial support when a qualifying disability meets the policy's definition of total and permanent disability.
How to Build Your Personal Protection Plan
Buying insurance should not simply mean selecting the first policy you see. A more useful approach is to build your protection strategy step by step.
Step 1: Identify your biggest financial risks
Write down your significant financial obligations.
Consider:
Mortgage or rent
Personal loans
Credit cards
Everyday household expenses
Dependants
Education expenses
Regular family commitments
Existing medical expenses
Then ask:
Which of these obligations would become difficult to manage after a serious illness, disability, or death?
Those areas represent your financial exposure.
Step 2: Review your emergency savings
Insurance and emergency savings perform different jobs. An emergency fund can help with smaller and short-term financial disruptions. Insurance can be considered for financial risks that may be too large for you to comfortably absorb yourself. Sorted recommends weighing the potential financial risk of going without insurance against the cost of purchasing the cover.
A practical question is:
Could I comfortably pay for this financial loss myself? If the answer is no, transferring some of that risk through insurance may be worth investigating.
Step 3: Check the cover you already have
Before taking out another policy, investigate whether you already have relevant protection. Sorted specifically recommends checking existing insurance so you do not unnecessarily duplicate cover.
Review any:
Existing personal insurance policies
Employer-provided benefits
Insurance associated with other financial products
Life, trauma, disability, or income protection policies you already hold
Knowing your starting point helps you identify genuine gaps.
Step 4: Calculate what would happen without your income
Now run a basic financial stress test. Imagine your income stopped.
Ask:
After one month: Could I pay my bills?
After three months: What savings would I need to use?
After a longer period: What financial goals would be affected?
Then consider the more difficult scenario:
What would happen financially if I could never return to my current earning capacity?
This exercise helps turn insurance from an abstract concept into a practical financial planning decision.
Step 5: Determine Who Depends on You
Financial dependence is one of the most important considerations when reviewing life insurance. List anyone who relies on you, either fully or partially.
That could include:
A spouse or partner
Children
Parents
Other whānau
Other people you financially support
Then consider what they would need if your financial contribution disappeared. The FMA states that if people depend on you financially, you may need insurance to protect them.
Step 6: Compare Policies, Not Just Premiums
It can be tempting to choose whichever insurance policy has the lowest premium. Price matters, but it is only one part of the decision.
Compare:
What is covered
What is excluded
Benefit amounts
Eligibility conditions
Policy definitions
Waiting periods, where applicable
Excesses, where applicable
How premiums are structured
How claims work
Whether your existing policies overlap
Sorted recommends shopping around, obtaining different quotes, and comparing what policies include and exclude. Cheap insurance that does not meet your needs is not necessarily good value.
Step 7: Read the Policy Carefully
Insurance contracts contain important definitions and conditions. Do not skip them.
Make sure you understand:
What events are covered?
What events are excluded?
When can you claim?
How much could the policy pay?
Are there limits?
What information must you provide?
What circumstances could affect a claim?
Sorted recommends reading policies carefully and asking the insurer to explain anything that is unclear.
If you do not understand something, ask before taking out the policy.
Step 8: Be Accurate When Applying
Insurance applications can ask for detailed information relevant to the insurer's assessment. Answer questions carefully and accurately.
Sorted advises consumers to provide all information requested by an insurer, warning that omitted important information can affect a claim. If you are uncertain about how to answer a question on an application, seek clarification rather than guessing.
Step 9: Make Sure the Premium Fits Your Budget
The best protection strategy is one you can realistically maintain. A very comprehensive combination of policies may sound ideal, but if the premiums put excessive pressure on your monthly budget, it may not be sustainable.
Your objective is to find an appropriate balance between:
The risks you need to protect + the level of cover you need + what you can sustainably afford. Sorted similarly advises balancing the amount of insurance cover needed against what you can afford to pay.
Step 10: Review Your Insurance as Life Changes
Insurance should not be something you purchase once and then forget about.
Your protection needs can change when you:
Get married or enter a long-term partnership
Have children
Buy a home
Take on or repay significant debt
Change jobs
Become self-employed
Experience significant changes in income
Approach retirement
A policy suitable for one stage of life may not necessarily remain suitable indefinitely. Consider including an insurance review in your regular financial check-up.
Insurance Is About Protecting the Plan
Suppose you are building savings, contributing to KiwiSaver, paying down your mortgage, and working towards becoming financially independent. That is your wealth-building strategy.
But there is another question:
What protects that strategy when life does not go according to plan?
That is where insurance can fit. Savings help you prepare. Investments may help you build wealth.
Insurance can help protect your financial position against certain major risks. Used appropriately, these tools can complement one another rather than compete with each other.
Remember: More Insurance Is Not Always Better
Being financially responsible does not mean buying every policy available. The aim is appropriate protection, not maximum insurance. You may determine that you can comfortably self-fund certain risks. For other risks, the potential financial loss could be too substantial to carry personally.
Insurance becomes especially useful when the financial consequence of an event could be far greater than what you could comfortably absorb from savings.
That is why your decision should be based on your own:
Income
Savings
Debt
Health circumstances
Dependants
Existing protection
Financial priorities
Budget
Tolerance for financial risk
There is no single insurance portfolio that is appropriate for every individuals.
The Smartest Investment May Be Protecting What You Are Building
Financial planning is not only about accumulating more money. It is also about protecting your ability to keep moving towards your goals when circumstances change.
Life Insurance can help protect the people financially dependent on you.
Health Insurance can help manage certain eligible healthcare costs.
Other forms of personal insurance can potentially help protect income or provide financial support following qualifying serious illnesses or disabilities. None of these products eliminates risk completely, and every policy has limitations. The goal is therefore not to insure everything. The goal is to understand the risks that could seriously disrupt your financial future and decide which ones you can carry yourself and which ones are worth transferring to an insurer.
That may make appropriate insurance one of the most valuable components of your long-term financial strategy.
Ready to Review Your Protection?
You have worked hard to build your income, lifestyle, savings, and future. Now make sure you have a plan to help protect them.
If you are unsure whether your current life and health insurance still matches your circumstances, or you are considering cover for the first time. Contact Susan to discuss your options and identify potential gaps in your protection.
Take the first step towards a more financially protected future.
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