When's the right time to get Insurance?
There is a lot of fun and freedom to be had in your twenties, but it is also when you need to start making adult decisions. Understanding insurance is a good step in the right direction! Most people in their early 20s are flatting, don’t have dependents and have minimal debts. These are all factors that should be taken into account when choosing insurance.
The insurance you need changes throughout your life, both in terms of what you need and the costs of premiums. Understanding how the different types of insurance work and scenarios in which you would claim means you can make an informed decision to get the best cover for each life stage.
If your parents had a health insurance policy for you, generally when you turn 18 or 21, it needs to be transferred to an individual policy. Having an insurance policy already in place is a wonderful gift, as it means you are likely to have very broad coverage as you won’t have many, if any, pre-existing conditions.
That is why it is so important to keep the policy active. If you let it lapse, you will need to re-apply and be underwritten again. That means any medical issues you have had in your life so far will no longer be covered. There are certain mechanisms you can use to reduce premiums, such as increasing the excess, but this needs to be done in consultation with an insurance adviser, so you understand any ramifications.
Lump sum insurance policies
These are insurance policies that pay out a lump sum in the event of an accident or certain illnesses. There are not offset by ACC (meaning you can claim both).
Life insurance is a policy that pays out in the event of your death. This insurance is usually focused on looking after people that are left behind. It is about covering debt, and perhaps the livelihood or lifestyle of loved ones or dependents. This means if you have no debt or dependents you may choose not to have life insurance just yet. Life insurance premiums tend to be lower when you are younger.
Trauma protection pays out a lump sum in the diagnosis of certain illnesses or if you experience specified injuries. Different providers have slightly different lists of illnesses or injuries, but all include cancer, heart attack and stroke. Injuries can include head trauma, burns or time spent in intensive care. One of the advantages of trauma protection is that it is cover you can get even if you don’t have an income, and the money can be used as you wish. It could be used to cover rent, travel, or to cover the income or expenses of someone who is looking after you. Trauma insurance premiums tend to be lower when you are younger.
Total and Permanent Disability insurance (TPD)
TPD is paid out in a lump sum if you were to become totally and permanently disabled through injury or illness. It also includes funds to modify a home.
When you are young you are unlikely to be totally and permanently disabled by an illness (though accidents can happen at any stage of life), so you may not see a need for it, however the financial impact of it happening can be disastrous. Because the risk of being totally and permanently disabled is low, this type of insurance actually has some of the lowest premium rates.
When deciding how much cover to have, you should consider any existing debts, the loss of all future earnings and investment potential, and what other insurance you may have in place. It is always best to have this discussion with an adviser, as they can explain how the different types of insurance complement each other. TPD insurance premiums tend to be lower when you are younger.
Income and mortgage protection
As it says in the name, income and mortgage protection are linked to your income or mortgage, so you can’t get them unless you have those first! They are paid monthly, after a stand-down period, following an accident or diagnosis of an illness. Income protection is offset by ACC, but if you have separate mortgage protection it isn’t offset – meaning it won’t reduce what you get from ACC. While ACC covers injuries, it doesn’t cover illnesses, which income protection does. Income protection premiums tend to be lower when you are younger.
This is general advice, intended to help you understand what is available, what questions to ask and key factors to take into account – you need to seek advice from an insurance adviser before buying insurance.