The Average

Let’s look at an example for the two basic protection-themes of life insurance.

Income replacement

The average wage in New Zealand is around $71,000 (Stats NZ). The average household income is $107,196.

Debt Repayment

What is average debt? The household debt is 165.6% of gross household income. This takes into account mortgage loans, consumer loans such as credit cards, and student loans.

Using these numbers then, $107,196 x 165.6% =

$177,516 as an average household debt amount.

How does this help us? The number might be the starting point for people in a similar situation. However, there is also considerable evidence about people being under–insured. Next, we consider the average amount that people are insured for.

What is the average life cover sum insured?

Each person’s situation is different. Some insurance is better than no cover whatsoever. Using the data from one of the major providers in the market for 2020, the average claim for life insurance was $230,000.

If we simply take just the average debt away from the average sum insured amount, we get

$230,000 – $177,516 = $52,484

Based on either the average wage or average household income above, this remaining amount is far short or a suitable replacement income for the surviving family. The family may see only approximately 6 months of equivalent income, certainly once a funeral has been paid for. Is that enough?

How much? Gold platter or meet my circumstances?

The question of “how much cover should I have?” has an answer that can be “as much as you want and can afford”. Obviously the higher the amount the cover, the higher the premium cost is to you.

We will continue our ‘average’ theme. In this example, we’ll quote an adult female, 38 years old and a non-smoker, using the average amount above of $230,000. Her cost would be around $10.70 per fortnight.

This cost will go up each year, as our female example will get older, and the provider will adapt their pricing based on the market. By the time, she reaches age 60, her premiums may be up around $70 per fortnight. This type of premium option is the most common, and is known and YRT or yearly renewable term.

People can ‘fix’ their premiums in a similar way to ‘fixing their mortgage’. It is known as levelling the premium. You pay a little more to begin with, but you can save thousands over the life of the policy. Our female example would pay maybe $25 per fortnight when she is 38, and would continue paying that price, through to age 80. Even by age 60, our friend would be saving herself $55 a fortnight by following this method.

In the claims statistics used earlier, the youngest claim was a 21-year-old. Death from cancer accounts for 37% of all claims. The question to ask yourself is, who relies on your income? If you die and that income stops, how will that change things for the people you leave behind? Life insurance is not for you, it is for those others you care about.

While we may want or feel that we need the best level of cover, or insure for the highest amount, we must balance that with our budget. For some, insuring your life for $230,000 may be way too high, for others it will be way too low. It doesn’t matter.

Some cover is better than no cover.

Some insurance is better than no insurance.