Most New Zealanders who buy life insurance choose term life insurance — and for most people, it’s the right call. But whole of life insurance has its place too. Here’s how to decide.
The Core Difference
Term life insurance covers you for a set period — typically until age 70, 80, or a chosen end date. If you die during that term, your insurer pays the agreed lump sum. If you outlive the term, the policy ends and nothing is paid.
Whole of life insurance (also called permanent life insurance) covers you for your entire life. It’s guaranteed to pay out eventually, which is why it costs significantly more.
Term Life Insurance NZ
Term life is the most common type of life insurance sold in New Zealand. It’s straightforward, affordable, and designed to cover you during the years when your death would cause the most financial damage — while you’re raising children, paying off a mortgage, or building wealth.
How it works
You choose:
- A sum insured (e.g. $500,000)
- A term end date (e.g. age 70)
- A premium structure — stepped or level
If you die before the term ends, the insurer pays your beneficiary the lump sum. If you survive, the policy expires.
What term life insurance costs in NZ
Premiums vary significantly by age, health, smoking status, and sum insured. Indicative stepped premiums for a non-smoking New Zealander:
| Age | $500,000 cover | $1,000,000 cover |
|---|---|---|
| 30 | ~$30–$50/mth | ~$55–$95/mth |
| 40 | ~$60–$100/mth | ~$110–$190/mth |
| 50 | ~$130–$220/mth | ~$250–$420/mth |
Stepped premiums increase with age. Level premiums start higher but remain stable. Smokers typically pay 2–3× more.
Pros of term life insurance
- Low cost when you’re young and healthy
- Simple — pay premiums, get cover, done
- Sum insured can be matched to your actual financial need
- Easy to adjust as circumstances change
Cons
- No payout if you outlive the term
- Premiums rise steeply in later years on stepped structures
- May become unaffordable or uninsurable at older ages
Whole of Life Insurance NZ
Whole of life insurance is guaranteed to pay out — it’s a matter of when, not if. Because of this certainty, premiums are much higher. Some policies also accumulate a cash value over time that you can access while alive.
Whole of life is rarely sold in New Zealand today — most advisers and insurers focus on term life. You’re more likely to encounter it if you’re looking at legacy planning or if a broker from an older era set up your policy.
When whole of life might make sense
- Estate planning: If you want to guarantee a payment to beneficiaries regardless of when you die — for example, to cover inheritance tax in countries that have it (NZ doesn’t), or to equalise an estate between children who inherit different assets.
- Final expenses: Some people take a small whole of life policy ($10,000–$25,000) to cover funeral costs, knowing it will eventually pay out.
- Business succession: Where the certainty of a payout matters regardless of timing.
Pros
- Guaranteed payout
- Can accumulate cash value
- Premiums don’t increase with age (on some structures)
Cons
- Much more expensive than term life
- The investment component often performs poorly compared to investing the premium difference
- Complex products that can be hard to compare
Which Should You Choose?
For most New Zealanders, term life insurance is the right answer. Here’s why:
Your need for life insurance is highest when you’re young — when your mortgage is large, your children are young, and your savings are limited. As you age, your mortgage shrinks, your children become independent, and your savings grow. By the time term insurance expires (say, at age 70), your financial need for it has usually reduced dramatically.
The argument “buy term and invest the difference” is well-established: the premium savings from buying term over whole of life, invested sensibly over decades, typically outperform the cash value accumulation of whole of life policies.
Choose term life if:
- You have a mortgage or dependants
- You want affordable, sufficient cover during working years
- You’re under 55 and in reasonable health
Consider whole of life if:
- You have specific estate planning objectives
- You want certainty of payout for funeral or inheritance purposes
- An adviser has done detailed modelling showing it suits your situation
Getting the Right Policy
Life insurance in New Zealand is mainly sold through financial advisers who hold an FSLAA licence. Direct insurers like nib and AIA also sell online, but complex cases (health history, high sums insured, business needs) are usually better handled through an adviser who can negotiate underwriting terms on your behalf.
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