Wondering what ‘future insurability’ means? Insurance terms demystified.
Earlier this year we ran an article that demystified some of the insurance terms that our clients commonly ask us about (you can read that article here). It was so well received that we’ve decided to run a follow-up!
We canvassed our team around New Zealand to come up with a fresh batch of insurance industry terms that regularly appear in policies, and often cause clients to scratch their heads.
Wondering about the meaning of a word or phrase in your policy that isn’t on our list? Please don’t hesitate to reach out to one of our registered financial advisers – they will be more than happy to help!
Insurance terms defined:
Rate for Age
Sometimes referred to as ‘Stepped Cover’, ‘Rate for Age’-based life insurance cover means that your insurance premiums increase as you get older. The reason this happens is that, as you age, you become more likely to claim on your policy. From your insurance company’s perspective, the risk of having to payout becomes higher – which leads them to charge a greater premium.
This type of life insurance is very common in New Zealand and can be attractive to those who are starting out, as the premiums are typically much lower for younger people.
When deciding whether ‘Rate for Age’ life insurance cover is right for you, it’s worth considering that you can opt for ‘Level’ cover, which is more expensive initially but does not increase over time.
If you’re unsure which of these is the better option for you, a registered financial adviser can help you understand the pros and cons.
CPI or Indexed Insurance
We’ve all been hearing the words ‘cost of living’ plenty in 2023. From increased mortgage rates to the amount we’re paying for fruit and vegetables at the supermarket, just getting by is feeling pretty expensive for many of us at the moment. And that’s exactly where ‘CPI’ or ‘Indexed’ insurance comes in.
To understand this benefit, it’s important to know that ‘CPI’ refers to the ‘Consumer Price Index’, which is a measure of the average percentage change in price over time for the same set of goods and / or services. In Aotearoa, CPI is generally calculated using the percentage change in the price of goods such as food, clothing and housing.
When it comes to your insurance, ‘CPI’ or ‘Indexed’ insurance is a term is used to describe the ability to have your insurance company adjust your sum insured each year (in line with the official CPI rating) – effectively protecting you against inflation.
The adjustment is made each year on the anniversary of the date that you started the policy, at which time you will be sent an updated ‘sum insured’ value to approve. If you go ahead with the increase, then the updated amount becomes the benefit that is paid out if you need to claim.
Partial Payment
Don’t worry – the phrase ‘Partial Payment’ doesn’t mean you’ll get any less than you’re entitled to! In fact, it’s actually a really useful policy benefit that means you can access some of the sum you’re ensured for, even if you don’t meet all of the criteria for a full payout.
Partial Payments often come into play for clients with an early-stage cancer diagnosis. This is because most insurance policies state that cancer must be advanced to a particular stage before a full payout is triggered. Therefore, rather than receiving no payout because the full criteria aren’t met, the insured person will still receive some money.
Another common example is where someone is in the early stages of a degenerative disease, such as MS. In this case, the client may be able to access part of the full payment while their disease is still mild. This gives them the ability to spend a little extra on adjusting their home to make it easier to live with their condition, or investing in some ‘bucket list’ activities while they are capable of enjoying the experiences to their fullest.
Waiver of Premium
If you hold income protection cover and need to stop working due to illness or disability, having a ‘Waiver of Premium’ benefit means that you won’t need to pay your insurance premiums for a defined period of time. You will still receive all of your insurance benefits during this period – you just won’t need to pay out for the policy cover each month.
Having worked with hundreds of clients who’ve needed to claim on their income protection through the years, we’ve seen firsthand just how worthwhile this benefit is.
Being able to take a break from premiums when you can’t work due to injury or illness (while still remaining fully covered) gives you a little extra cash in your bank account and, along with it, additional peace of mind around your finances.
Future Insurability
For many of us, the level of insurance cover required on day one of our policy is lower than what we anticipate needing in five- or ten-years’ time.
A good example is a couple that is starting out and has a small home and no dependents, but anticipates buying a larger, family home and having children within the next five years. When this happens, the increased mortgage and need to support dependents may mean that the couple would need a larger insurance payout to cover their expenses if they had to make a claim.
This is where ‘Future Insurability’ comes in. This is an optional benefit that enables you to increase the sum that you’re insured for once every few years. While you will end up paying a higher premium (due to the increase in your insurance cover) it’s can be a really important benefit to take advantage of, given that it ensures you’re well covered in the event you have to make a claim.
The best part about Future Insurability is that you can apply for an increase (within certain limits) without medical underwriting. That means, you can increase your cover without the need to give your insurance company an updated medical history – so any conditions that have arisen since you bought your policy will not be excluded.
Insurance decisions can be hard! But, rest assured, an insurance expert makes things easy.
While getting your head around insurance terms might seem tricky, the real challenge is ensuring that you have the right information to make the best decisions to cover you and your loved ones properly.
A registered financial adviser that specialises in insurance will tailor your policy to your needs, budget, and stage in life – providing you with the ideal level of protection at the best price.
Chat to our friendly team now
You’ll find Plus 4 insurance advisers around New Zealand helping Kiwis just like you. For a friendly, no-obligation chat to see how we can help you, simply contact your local adviser now.