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Buying a home is probably the biggest financial commitment you will ever make. Most people spend months thinking about the deposit, the interest rate, and the repayments. The insurance side gets sorted in a hurry, if it gets sorted at all.
That is understandable. But mortgage protection insurance is not a box to tick on settlement day. Who you can get covered with, on what terms, and at what cost all depend on a handful of factors that are worth understanding before you apply. Some of them you can prepare for. Others you just need to know about.
Your Health History
This is the one that shapes most applications more than anything else.
Mortgage life insurance requires an assessment of your risk of a claim. This is why your medical history becomes relevant to your application.
The key here is not the mere fact of certain diseases, but the time of their occurrence, seriousness, and whether you still have them at the moment of applying for mortgage life insurance. An injury to your spine which occurred ten years ago and never led to any problems since then is a far cry from chronic pain which you control using prescribed medication. Conditions such as psychological problems, heart disease, diabetes, past cancer cases, musculoskeletal problems, etc., often arise during underwriting.
Here is the thing, though: most people with health histories still get covered. Some get covered on standard terms. Others get an exclusion for the specific condition. A smaller number pay a higher premium. Outright declines are less common than people assume.
It is the act of not disclosing something that causes trouble and it coming out when you need to make a claim. It is easy to handle something you know upfront about that is excluded. A declined claim on account of non-disclosure is difficult to handle. Do not hide anything in your applications.
An independent consultant will definitely have an idea of which insurers are willing to give you a better deal for certain medical conditions. This will ensure that you do not apply with an insurer who will decline your application.
Your Occupation
Even two individuals who have the same health background might receive different mortgage insurance quotes based on what their job is all about.
Those whose jobs are risky statistically have higher chances of falling ill or suffering from an injury, which may lead to claiming compensation. That is why those jobs are priced accordingly. While some jobs might require paying a loaded premium, for others it could limit or even deny certain coverages.
This does not mean people in physical jobs cannot get covered. Most can, and do. But the terms can vary quite a bit between providers, because different insurers assess occupational risk differently. One insurer might price a particular trade conservatively. Another might be fine with it at standard rates.
This is exactly where comparing across the market pays off. An adviser who works across multiple providers can find the option that treats your occupation most reasonably, rather than defaulting to whatever comes up first.
Your Age When You Apply
Mortgage protection insurance NZ gets more expensive the older you are when you first take it out. That is simply how risk is priced. The older you are, the more likely something will happen during the policy period, and premiums reflect that.
But age is not just about cost. Health conditions that develop between now and when you eventually apply can also affect what terms are available to you. Something that would have been covered on standard terms at 32 might carry an exclusion at 42 if a relevant health issue has developed in the meantime.
Sorting cover while you are younger and in good health generally means the best available terms. It is one of those decisions where waiting costs you more than it saves.
Stepped vs Level Premiums
Most consumers consider the monthly cost and choose the cheapest one at that particular moment. Stepped premiums are mostly preferred because they begin low and rise every year.
The problem is that over a 25- or 30-year mortgage, stepped premiums can end up costing significantly more than a level structure would have. Level premiums are fixed from the start, sit higher initially, but do not increase over time.
Neither structure is wrong. It depends on your budget now versus what you expect your financial position to look like in ten or twenty years. An adviser can model both over your actual mortgage term so you can see the real numbers, not just this month’s cost.
Mortgage Protection vs Income Protection
There are some similarities between these two kinds of insurance, but it might be useful to distinguish what each kind of insurance provides.
Mortgage repayment insurance NZ is a specific type of cover. This type of insurance provides protection for your mortgage repayments in case you are not able to work because of an illness or an accident. It works as either monthly payments or a lump-sum payment in case of death or total permanent disability.
Income protection is broader. It replaces a percentage of your total income, which you can use for anything, not just the mortgage. Rent, food, school fees, debt payments, whatever the household needs.
Many people hold both, and for good reason. If your mortgage is just one of several financial obligations, income protection alone may not keep the household running. Getting the structure right is something an adviser can work through with you based on your actual situation.
Ready to sort your mortgage cover properly? NZ Insurances works independently across AIA, Partners Life, Asteron Life, Fidelity Life, Chubb Life, and nib to find cover that fits your life and your budget. Call 0800 100 300 or email hello@nzinsurances.co.nz for a free, no-obligation conversation.
Frequently Asked Questions: Mortgage Insurance NZ
Q: Can I get mortgage protection insurance if I have a pre-existing health condition?
A: Generally, however, that’s not always the case. Having a pre-existing condition doesn’t automatically lead to a denial. Whether you’ll be offered coverage without a pre-existing condition clause depends on the nature of that condition and how long ago you received treatment for it. There may be an option where you’ll have coverage based on that condition being excluded or having a slightly increased premium. An insurance broker can help you find companies that will give you good terms given your history.
Q: Does my job affect what mortgage insurance I can get?
A: It can. Higher-risk occupations sometimes attract premium loadings or limitations on certain benefits. Different insurers assess occupational risk differently, so comparing across providers matters more here than in most situations. An adviser who works across the full market can find the most reasonable option for your line of work.
Q: What is the difference between mortgage protection insurance and mortgage repayment insurance in NZ?
A: Mortgage protection insurance usually covers a wider range of risks, including death, total permanent disablement, and replacement of income with respect to the mortgage. Mortgage repayment insurance covers just your monthly repayments of your mortgage if, due to sickness or accident, you cannot work anymore.
Q: When is the right time to buy mortgage life insurance in New Zealand?
A: As soon as possible, especially at the very beginning of your mortgage application process. Being younger and healthy will get you a better deal on terms and premiums. Any health problems that could appear later might get you exclusions that you wouldn’t have with an earlier policy.
Q: Is there any chance that I can have both mortgage protection and income protection simultaneously?
A: Certainly! There is nothing wrong with having both. There is a difference between the two. The mortgage protection covers your home loan only. On the other hand, the income protection covers all of your financial needs. For a family that is faced with many kinds of financial commitments, both will suit them best.
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