Executive Summary:
Planning ahead for life’s most challenging moments can be a daunting task—especially for Kiwis facing decisions about funeral insurance versus level life cover. This article provides a clear comparison, outlining the distinct purposes, benefits, and long-term costs of each option. Funeral insurance often appeals with simpler applications and smaller, targeted payouts for immediate funeral expenses. However, premiums can rise over time, and the total cost might eventually exceed the benefit. In contrast, level life cover offers fixed premiums, a larger payout, and broader financial protection for whānau—though it typically involves more rigorous underwriting. Understanding these differences is crucial for Kiwis who want to make informed choices, balance affordability, and ensure the right amount of coverage for their loved ones’ needs.
What is Funeral Insurance?
Funeral insurance is a policy specifically designed to pay out a small lump sum to your loved ones when you pass away. This money is typically used to cover funeral or tangihanga costs, which tends to cost an average of $10,000 or more, depending on the service’s complexity and location (Consumer NZ).
Key Features of Funeral Insurance:
Simple Application Process – Many providers in New Zealand make application quick and straightforward, often with minimal medical underwriting.
Targeted Coverage – It’s designed to meet funeral expenses rather than long-term financial needs like mortgage payments or income replacement.
Potential for Rising Premiums – Premiums can start low but often increase with age, which might mean paying more than the benefit amount over time if you hold the policy for many years.
What is Level Life Insurance?
Level life insurance simply refers to a life insurance policy where your premiums remain the same until you turn a specific age. Your life insurance policy can have a range of uses not only covering a funeral but your debt, replacement income for loved ones, and much more.
Key Features of Level Life Insurance:
Fixed Premiums – With level cover, your premiums do not increase as you age, providing long-term budget certainty.
Larger Payout – The sum insured is generally higher than funeral insurance, allowing your beneficiaries to cover funeral costs and other financial commitments.
Long-Term Protection – The premiums are guaranteed until a specified age (usually 65, 80, and 100 depending n the provider), ensuring your family can receive a significant payout when you pass away.
What Are The Differences?
Coverage Amount and Purpose
Funeral Insurance: Focuses on immediate final expenses. If you only want to ensure that a specific sum is quickly accessible for a funeral, funeral insurance can be appealing.
Level Life Insurance: Pays out a higher lump sum that can also cover additional costs like outstanding debts or living expenses for loved ones, not just the funeral.
Premium Structure
Funeral Insurance: Premiums often start low but increase over time. If you keep the policy for many years, you could end up paying more than the policy’s payout.
Level Life Insurance: You lock in a fixed premium, which can give you better long-term value if you can afford the initial premium.
Policy Longevity
Funeral Insurance: Policies may expire at a certain age (for example, 85 or 90), or premiums may become unaffordable.
Level Life Insurance: Coverage continues (and premiums stay the same) until you turn 100—or until you pass away—whichever comes first.
Eligibility and Underwriting
Funeral Insurance: Often easier to get with minimal health checks, making it suitable for individuals who may have difficulty qualifying for traditional life insurance.
Level to 100 Life Cover: Usually involves more comprehensive underwriting, but if you’re in reasonably good health, you’ll secure a stable, long-term rate.
The Pros and Cons of Funeral Insurance:
Pros
Ease of Access: Lower entry barriers and quick approvals.
Dedicated Funeral Fund: Helps ensure funeral costs don’t burden loved ones.
Simplicity: Straightforward policy terms and smaller benefit amounts.
Cons
Total Cost Over Time: Premiums can add up over many years; potentially paying more than the benefit.
Limited Coverage: Benefit may only be enough for funeral expenses, leaving no extra for other financial needs.
Premium Increases: You could face premium hikes that become unaffordable later in life.
The Pros and Cons of Level Life Insurance:
Pros
Fixed Premiums: Budgeting is simpler since your premiums don’t rise with age.
Higher Lump Sum: Covers funeral costs and other financial obligations, like mortgage repayment.
Long-Term Security: Coverage remains in place until age 100, providing peace of mind for you and your whānau.
Cons
More Rigorous Underwriting: You’ll typically undergo a more detailed application process (including medical checks).
Higher Initial Premiums: While premiums stay level, they may be higher to begin with compared to funeral insurance.
Less Flexible Exit: If you cancel mid-term, you generally don’t receive any refund of premiums paid to date.
Deciding What's Right for You:
When weighing funeral insurance against level to 100 life cover, consider the following factors:
Budget and Affordability: Can you commit to slightly higher but fixed premiums for long-term cover? Or do you prefer lower upfront premiums, acknowledging they may rise?
Health and Eligibility: If you have pre-existing medical conditions or find it hard to qualify for traditional life insurance, funeral insurance may be more accessible.
Financial Goals: Do you only need to cover final expenses, or do you want a significant sum for mortgage repayment and support for your dependents?
Length of Coverage: Are you comfortable with a policy that might expire or become unaffordable? Or do you want to lock in lifetime coverage that stays with you until age 100?
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Key Takeaways:
Funeral Insurance: Great for immediate peace of mind and simpler qualification. However, costs can escalate over time, and the payout may not be enough to handle broader financial needs.
Level Life Cover: Offers guaranteed coverage and fixed premiums until a specified age, with a larger payout. While the underwriting is more rigorous, it can be a better long-term financial decision if you’re eligible and can handle the initial premium level.
Ultimately, the choice comes down to your health, budget, and overall financial goals. Take your time to review policies, compare quotes, and discuss your situation with a trusted insurance adviser who understands the New Zealand insurance landscape.
Need Expert Advice?
If you’re still unsure about whether funeral insurance or level life cover is right for you, we can help connect you with experienced life insurance advisers. They can walk you through the nuances of each policy type, provide clear quotes, and guide you toward a plan that meets your needs—both now and into the future.
Click here to take our assessment, your peace of mind is just a conversation away.
