Insurance
9 min read
Most Kiwi property owners think their home is the most valuable asset they’ll ever own, but that’s often not true.
Your biggest asset is you. It’s your ability to earn an income and if that income stops (even temporarily) your financial goals can quickly unravel.
After all, buying an investment property usually means borrowing hundreds of thousands of dollars ... and you might need to earn an income to afford that debt.
It’s a serious commitment, and losing your income is a serious risk. That’s why all investors should have a conversation about personal risk insurance.
That includes:
life cover (if you die your family gets a payout)
trauma cover (if you get very sick you get a payout)
income protection (if you get sick and can’t work, the insurer pays you an income)
mortgage protection (if you get sick and can’t pay your mortgage, the insurer pays)
And a few others
And while that all sounds good, there are 5 common things that go wrong (risks) when investors take out personal risk insurance.
That’s why in this guide you’ll learn what those key risks are. You’ll learn the common pitfalls within individual policies, and how to protect yourself.
When you take out insurance it’s meant to protect you and your family if something goes wrong.
But like anything financial, there are some things that can go wrong, so pay attention to these risks and common mistakes:
Most insurance gets more expensive as you get older. That’s because you are more likely to make a claim as you get older.
After all, you’re less likely to die at 30 compared to 70, so life insurance is often cheaper the younger you are.
But here’s the catch: you often won’t need as much insurance as you age.
That’s because your assets have grown, your debts shrink, and maybe your children have grown up and moved out.
That’s why many people cancel or significantly reduce their policies as they get older.
The same principle applies at the other end of the spectrum. If you’re young, single, and don’t have significant debts or dependants, you may not need as much cover as you’re offered.
The risk is paying for insurance that no longer matches your situation. This adds unnecessary cost without giving you meaningful protection.
How to avoid it:
Review your policies regularly to make sure your cover still fits your life and your budget
Consider changing the excess or wait periods if you want to reduce costs.
You may have your policy cancelled if you aren’t honest in your initial application. If that happens it’s as if the policy never existed.
So you could end up paying premiums for years … and receive nothing when you need it most.
If you’re ever found guilty of this, you may become uninsurable everywhere.
So, always fully disclose your health and lifestyle, which includes:
medical history
mental health
Smoking/vaping use
and anything else the insurer asks about.
Sometimes people genuinely forget things.
But as I tell my clients when they’re completing an application: “You might forget stubbing your toe back in ’86, but you won’t forget a heart attack in ’87.”
How to avoid it
Insurance policies don’t all use the same definitions.
For example, let’s say you want to take out trauma cover. Some insurance companies will make a payment based on 47 listed illnesses, but not all insurance companies cover all illnesses.
On top of that each of those illnesses has a metric to determine whether the illness is severe enough to trigger an insurance claim.
This means you could develop a heart condition, but it may be one that’s not serious enough to qualify for a trauma payout. Those metrics may be different for each insurer, so while two insurance policies may look similar, the detail may mean they are very different. The risk is that you take out a policy, not fully understanding the risks.
How to avoid it:
A successful claim requires accurate and complete information. If you don’t meet the insurer’s exact criteria, your claim might be delayed or declined.
Don’t get me wrong, reputable insurance companies are geared up to pay out. So, claims are typically rejected for legitimate reasons.
But they do need a certain amount of paperwork.
If crucial details are missing, the insurer will ask for more, like a medical note or a copy of the referral.
How to avoid it:
Have your adviser guide you through the process (that’s what they’re there for)
Keep copies of all documents and medical reports
If something doesn’t seem right, ask about your options for review or appeal.
If you switch insurance policies you will have to go through medical underwriting again. That means another health check.
If your health has changed the new insurer might decide to not cover (exclude) your current medical conditions. Or, they might charge you more, so you might be left worse off than before.
How to avoid it:
Risks in insurance aren’t always as broad as our first 5 points.
Here’s how these risks can show up in different types of personal insurance:
One of the biggest risks with life insurance is paying too much for too long.
Life insurance premiums are heavily influenced by your age and the amount of cover you hold. That’s not a problem if your need for cover stays the same – but it rarely does.
For many people you might need the most life cover when you are in mid-life. That’s because you might have young children, a mortgage, and a partner. Your family might depend on your income, and if you pass away that could leave them in emotional and financial strife.
But as you age typically your assets grow, debts shrink, and your children become financially independent. So, your need for life insurance often decreases.
The risk isn’t just that premiums rise with age, it’s that you continue paying for cover you no longer need – at a stage of life when the cost is highest.
Top tip: Review your life insurance regularly to make sure the amount of cover still reflects your financial situation.
Trauma insurance is designed to pay out if you’re diagnosed with a serious illness, but it doesn’t cover everything.
Most trauma policies only pay for conditions specifically listed in the policy. If you’re diagnosed with a serious but unlisted illness, there’s a risk you won’t be able to claim.
That creates a trade-off between affordability and breadth of cover. Policies that cover more conditions tend to cost more, although cheaper policies may leave larger gaps.
Another often-overlooked risk is claim limits. Some trauma policies allow only one claim per condition, although most have three, four or five claims and reinstate instantly. It’s an optional feature, but is normally on a policy.
This is where the fine print matters. The difference between two policies can determine whether a claim is paid ... or declined.
Top tip: Read the list of covered conditions carefully and prioritise breadth of cover. Don’t just think about price.
Income protection is one of the most comprehensive forms of personal insurance. It’s also the most expensive.
But the biggest risk isn’t just cost; it’s choosing a policy that looks good on paper but provides less support than expected at claim time.
Some people can’t access income protection at all, particularly those in high-risk occupations or professional sports. Even when cover is available, policy structure matters.
For example, some income protection policies are offset by ACC, meaning payments are reduced. Others cap benefits based on recent income, or include long waiting periods before payments begin.
These features can significantly affect how much you receive and when.
Top tip: Make sure the policy type, benefit structure, and waiting periods align with how you earn income and manage cashflow.
Some Total and Permanent Disability policies only pay out if you’re unable to work in any occupation at all. Others pay if you can no longer perform your own occupation.
That alone can be the difference between a large payout and no payout at all.
“Any occupation” cover pays out if you are unable to work in any occupation that you are suitably trained or qualified for; “own occupation” pays out if you are unable to do your specific occupation.
A good example is if a plumber had TPD and had an accident. If they were able to work in a plumbing supply shop after their accident and had “any occupation” they would not get a claim as it is still using their skill set; if they had “own occupation” they would likely be paid out as they are not able to work as a plumber.
Another hurdle is when you change jobs, but haven’t updated your policy. If your role has changed, or your occupation isn’t accurately described, the insurer may assess your claim against the wrong standard.
Top tip: Double-check your occupation details and disability definitions are accurate and up-to-date.
Health insurance risks tend to be quieter but no less important.
Different insurers place different limits on what they’ll pay, which usually depends on the procedures covered.
There may also be exclusions, stand-down periods, or caps on specialist care.
If you don’t understand these limits it’s easy to assume you’re covered ... only to discover you're not.
With medical insurance the risk isn’t usually paying too much; it’s believing you’re protected when the cover is narrower than you realised.
Tip: Understand what your policy covers and where the gaps are.
Insurance doesn’t stop bad things from happening, but it provides choices and dignity when you need it.
The most practical way to manage the risk around insurance is to make sure you regularly review your cover.
Life changes, and your job, income, health and family situation will evolve. Your insurance needs to evolve with them.
So choose quality providers and understand exactly what you’re paying for.
Also, keep your information honest and up-to-date.
That’s how you make sure your insurance actually does what it’s supposed to do: protect you when it matters most.
This article is for your general information. It’s not financial advice. See here for details about our Financial Advice Provider Disclosure. So Opes isn’t telling you what to do with your own money.
We’ve made every effort to make sure the information is accurate. But we occasionally get the odd fact wrong. Make sure you do your own research or talk to a financial adviser before making any investment decisions.
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