There are pros and cons to any financial decision, but here’s why keeping or even upgrading life insurance is worth considering.
So, you’re over 50. You’ve pulled your life insurance policy out of the filing cabinet and are questioning how much you still need it. It’s a familiar story. Any children you have may have moved out, the mortgage is paid off (or almost) and retirement doesn’t seem far away. The prospect of paying increased premiums may cause you to wonder whether it’s worth holding onto that piece of paper. But should you really cancel it?
Supporting our partner and children
The core reason for life insurance cover remains the same when we enter our 50s and 60s. We may feel fit, healthy and think we’re indestructible. But the world has a habit of throwing curveballs (COVID-19 anyone?). If you no longer have financial dependents and have built a sufficient bedrock of savings, then continuing a policy may seem an unnecessary expense. However, if there are people in your life who might be financially affected if you were no longer here, continuing to retain your policy may be prudent financial planning.
The reality for many New Zealanders today is a high cost of living, with inflation above the Reserve Bank’s target.1 House prices have risen more than 30% in the year to July 2021.2 The record cost of housing – from big cities like Auckland and Wellington to provincial centres – is making financial independence difficult. Families and key workers are moving further away from employment centres or relocating to other parts of the country for a more affordable lifestyle.
You and your partner may still be under the weight of a mortgage for the dream home or investment property you bought years ago. Meanwhile, our children, and very soon our grandchildren, can be struggling with housing costs, paying off student loans and planning for their own families.
We all want to see our kids leave the nest and make their own way, but sometimes not everything works out. Retaining life insurance may be worth considering if your children move back in or otherwise need to rely on you.
Supporting our parents
There is no doubt we’re all living longer, with the average life expectancy for a New Zealander now over 80 years.3 If you’re in your 50s, your parents may well be destined to reside on this Earth a while more. They may be fortunate to enjoy good health for that time – or be required to manage conditions like arthritis, cancer, dementia or Alzheimer’s disease. As a result, they may also come to depend on you for caregiving, medical bills and rental support.
You once depended on your parents; now the hour might be approaching when you’re called upon to return their efforts.
Protecting your small business
Maybe you’ve dedicated most of your working life to building a business. You put in so many hours of toil, you’re proud of what you accomplished and want to ensure you hand it over in healthy shape – whether to a family member or business partner.
If so, maintaining life insurance can help cover any unsettled debts left by your passing. It may assist a smooth handover to new owners by paying for any transfer expenses. It can also cover the costs of hiring temporary staff or finding a new employee to take on your role.
If the intention is for your business partner to purchase the business after you are gone, and the insurance is being held for this purpose, then it’s important that you sort out the policy ownership ahead of time.
Term life policies
Term life insurance policies provide protection for a specific period of time, normally subject to a maximum age. They offer a lump sum payout to your estate or surviving policy owners should you pass away in that time, but do not have a cash value. Retaining one of these into your 50s may be worth considering, especially if your life circumstances change; for example, a second marriage brings further children or dependants from a previous marriage.
Insurance premiums and corresponding cover can be structured in a way that helps you plan and manage your budget over the lifetime of the policy. To help you choose the right option for you, it’s important to consider your short and long-term cover needs, how long you need cover for, your current budget and expected future income and expenses.
It is common for Term life insurance policies to have a yearly stepped premium. This means premiums for a set amount of cover increase each year as you get older. Some policies allow what are called “level premium” options, which means premiums are fixed for a defined period of time, with some reverting to ‘stepped premium’ at the end of this period. It’s also possible to have a combination of both for certain policies. What is most suitable for you will depend on your circumstances. In the short-term, stepped premiums can be the most affordable option, however for longer term protection needs, utilising level premiums for all or some of the cover can create more certainty around premium costs. Generally, the younger you are when premiums are set to “level”, the lower the level premium will be.
We know that your financial situation may change, including your protection needs and income. The good news is that your cover can be flexible and change with you.
Whole of life or Endowment policies
Also known as permanent life insurance, these policies are often held to retirement and beyond. Premiums are initially higher than term insurance, but policies are often more flexible, giving you the ability to withdraw or borrow the cash value you’ve put in. This will likely affect the final payout or may have to be repaid with interest. However, having an extra source of cash could prove useful for renovations, investment, or to help other family members.
There are additional benefits available from Whole of Life and Endowment policies if kept to maturity. A Whole of Life Insurance policy provides risk protection against the financial impacts of death or terminal illness, with the option to add additional covers. It gives long term, increasing life cover with a level premium, so your premiums won’t increase over the term of your policy, subject to any increases to your sum insured or policy changes. Whole of Life policies can be suitable for estate planning and bequests. If you pass away before your partner, you may not wish to put them through the inconvenience of liquidating jointly held assets. The payout from this policy can act as some form of inheritance in the meantime.
To help keep cover affordable, you can reduce the premiums on the policy. Though this reduces the sum insured, it does enable you to keep life cover in place at a level that’s affordable for you instead of cancelling the policy altogether. Retaining the policy may reduce the financial burden on your family by helping cover funeral expenses and settling any outstanding debts.
Consider your options carefully
It sounds fanciful to even be imagining a post-pandemic world given all the twists and turns so far. COVID-19 has undoubtedly made life more precarious, no matter what your age. So, if you have a life insurance policy, it’s a good idea to review your financial, family and life circumstances carefully, and seek advice before cancelling it.
If you feel like the premiums you’re currently paying are higher than you can afford, there are ways you could reduce your premium costs while keeping your insurance. If you haven’t reviewed it in a while, see when it expires to make sure you’re still covered. Check your details are up to date so you don’t miss any reminders for renewal.
To discuss your circumstances and what options may be suitable for you, please talk to your financial adviser.
1 Reserve Bank of New Zealand, “Inflation”, https://www.rbnz.govt.nz/monetary-policy/inflation
2 Real Estate Institute of New Zealand (REINZ), MONTHLY HOUSE PRICE INDEX REPORT, 12 AUGUST 2021, click here to check the report
3 Stats NZ – Tatauranga Aotearoa, “Life Expectancy”, https://www.stats.govt.nz/topics/life-expectancy
The content of this article is for information purposes only. The information in this article is general in nature and does not constitute financial, or other professional, advice. Before taking any action, you should always seek financial advice or other professional advice relevant to your personal circumstances, needs and objectives. While care has been taken to supply information in this article that is accurate, no entity or person gives any warranty of reliability or accuracy, or accepts any responsibility arising in any way including from any error or omission.
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Resolution Life Australasia Limited ABN 84 079 300 379, NZ Company No. 281363, AFSL No. 233671 (Resolution Life). The content on this website is for information only. The information is of a general nature and does not constitute financial advice or other professional advice. Before taking any action, you should always seek financial advice or other professional advice relevant to your personal circumstances. While care has been taken to supply information on this website that is accurate, no entity or person gives any warranty of reliability or accuracy, or accepts any responsibility arising in any way including from any error or omission.
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