Having a family will make you think more about the future than you ever have: “What happens to my kids if something happened to me? How would we cope money-wise if I got really sick and can’t work?”
That’s why many parents start exploring insurance. It’s one way to help protect your family when life doesn’t go to plan. But a lot of people don’t realise how many different types of insurance there is. It pays to know what your options are so you can decide about which ones will help you sleep at night.
Life
Life insurance is the most common insurance that parents get. If the worst happens and you pass away early, then your family gets paid out a lump sum (eg $200,000). You get to choose what that payout would be. But the bigger the payout, the more you’ll pay each month. Usually, you’ll want enough to cover funeral costs and pay off your mortgage.
Life income cover (especially for solo parents)
If you’re parenting alone, you might wonder, “Who would raise my kids if I wasn’t here and they were too young to work?” Life income cover helps answer that question. It provides regular payments (such as $1000 a month per child) to their new caregiver if you pass away. That way, you’re not just handing over responsibility, you’re offering financial support to their new guardian. Even in two-parent families, some choose to take out this insurance to give the other parent extra security.
Income protection
This insurance pays you a portion of your income if you can’t work because you get sick or injured. Now, some people think of income protection as a lotto ticket –something they pay for but will never get anything back from. Unfortunately, illness is far more common than you might think. In New Zealand, one in 20 adults are diagnosed with coronary heart disease over their lifetime. It’s estimated there are 60,000 stroke survivors too.
Trauma
If you become seriously ill (for example, you get cancer or have a heart attack) trauma cover pays you a lump sum (such as $100,000). Again, you choose the payout. But the bigger the payout, the more you pay each month. That money can be used however your family needs it: to take time off work, pay for treatment or simply keep the household running.
Total and permanent disability (TPD)
for single parents. How would you support your child if you were injured at work? TPD cover pays out a lump sum, giving you the money to adapt to a different life and continue caring for your family. But this depends on the type of role you have. If you work a standard desk job, you are less likely to need TPD than someone with a physical job. Additionally, some people think of insurance as something adults get. But some policies extend to children too – often at no extra cost.
Terminal illness cover for children
This is a tough one to talk about and most advisors don’t enjoy bringing it up. But some parents choose a policy that would pay them a large sum (say $200,000) if their child is diagnosed with a terminal illness. That policy premium is often under $3 a month. The goal for these covers isn’t money – it’s time. It’s about being able to stop working and being with your child while they are sick. It’s tough to talk about, but it’s important that you know what your options are.
Health
New Zealand’s public healthcare system is good, but some families choose to get private cover too. Health insurance for kids is typically very affordable. I get it, no parent likes to imagine worst-case scenarios. But it does happen. And this kind of cover puts some safeguards in place. So if something does go wrong, your family won’t be left in the lurch. It’s not about taking out the biggest policies – it’s about knowing your options.
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You don’t need them all
You don’t need all seven of these different types of insurance. You might only need one or two to cover the risks that are important for you. The insurance you do get will change over time. Life, income protection, trauma cover – these covers are always more pressing when your kids are dependent on you. But some parents want to dial back once their kids are grown. A good insurance advisor can help you build a plan that fits your life and adjust as your family grows. Because while we can’t predict the future, we can prepare for it – and that’s one of the most powerful ways we can protect our kids.
Economist Ed McKnight and managing partner of property investment company Opes Partners Andrew Nicol are hosts of The Property Academy Podcast. Listen to their daily show on streaming platforms.
