Is your insurance fit for purpose?
And by the way, what does it mean that your insurance is 'fit for purpose'? This month, we sat with our Operations Manager Ben Hindin to try and answer this very question. And here's what Ben had to say.
It's about aligning your cover with your life
“Essentially, making sure that your insurance is 'fit for purpose' means ensuring that the policy you have is going to work the way that you need it to, when you need it to.” says Ben.
“Many people take out insurance and then forget about it for years, often until claim time comes, thinking that it will cover them no matter what. But even if your policy was appropriate back then, your life is likely to change over time, and your insurance needs with it. For example, you may pay down your mortgage and end up paying for more life insurance than you need. Or you may take out more debt and not have enough cover for it.”
“That's why it's important to stay on top of those needs – both when you apply and over time. Reviewing your cover once a year and at key life events is the way to go.”
It's about the big financial picture
“Fit-for-purpose cover is about your big financial picture, not just individual items.” explains Ben.
“Typically, mortgages are the biggest things that people look to protect, in the event they passed away or were terminally ill. And unfortunately, not many people think about recovery funds or money that their family would need to maintain their lifestyle.”
“It's a good idea to start with the big-ticket items and then consider anything else that your family may need, if you were no longer around or able to provide for them. And that includes both short-term expenses and longer-term goals, like children's education. You may find that it doesn't cost much more today to get that invaluable extra layer of protection.”
It's about more than you
“I personally have cover, and I guess it's easy for me to understand its value, as I work in insurance. I didn't get cover for me alone, but to protect my family's future – and this is an important distinction to make.” says Ben.
“Having fit-for-purpose cover is about more than you: it's about your loved ones and their needs, present and future.”
“The key thing here is to think carefully about the what-if scenarios. For example, taking out cover to protect your mortgage is a good start. But if you increased your mortgage (for example, for a renovation) and didn't adjust your cover accordingly, your insurance would no longer be fit for purpose. Would your family need to sell the house anyway, which is what you were trying to avoid when you took out cover?”
It's not just for today and tomorrow
“From what we've just said, another important thing is becoming clear: fit-for-purpose insurance is not just for today or tomorrow. Depending on your needs, it may be for five years down the line or more.” says Ben.
“By staying on top of your financial life (like premium payments, levels of debt and so on), as well as what's happening around you (like rising interest rates, inflation, etc.), you can future- proof your insurance and check that's adequate for your needs at all times.”
You can DIY – but we can also help
“The past few years have been a whirlwind of changes and unprecedented events; plus, life has a tendency to get busy and stressful, which can it make it difficult to stay on top of your cover.” says Ben.
“But the importance of fit-for-purpose insurance can't be over-stressed. At LifeDirect, we make a point of reminding our clients about review time at least once a year. And it can even be more often, especially at key life events (e.g., a new baby, a new job, getting married etc.).”
“Have your debt changed in the past 12 months? How much do you still owe on your mortgage? What are your financial goals in the next couple of years? These are just some example questions that you can ask yourself at review time. And if you feel you need a bit more guidance, we're here to help. Our advisers know insurance inside and out and can challenge your thinking by asking the right questions, at the right time.”
“Whatever way you choose to approach this – DIY or not – make sure you really take the time to think about your answers. Deep consideration and a well-thought-out review is what your financial future deserves.”
Like to talk?
Our quote compare tool is great, but it's just one part of what we can do help Kiwis protect their future. We have a team of friendly insurance advisers on hand for any questions and support you might need.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.