The main types of personal risk insurance

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The following are the main types of personal risk insurance.  Insurance companies will package the insurances into their own insurance products and often give the products their own names.

LIFE INSURANCE

Term life insurance


Pays the insured amount only if death or terminal illness occurs within the period set out in the policy.

The insured amount may be level for the period or increase or decrease on specified terms (e.g. increase with the CPI or decrease in line with the increased risk of death a level premium will purchase).

The premium may be level in which case the insured amount may:
  • Decrease in line with the increased risk of death with increasing age or
  • Remain level throughout the period of the policy but with a higher premium.


Endowment insurance


Pays the sum insured during the period of the policy or if the insured person survives to a specified age (often 60 or 65).

As the sum insured will be paid at some stage, the policy has a value if it is cancelled that increases the longer the policy is in force.

For some policies the insured amount increases with bonuses declared by the insurance company.


Whole of life


Pays the sum insured whenever death occurs.

As the sum insured will be paid at some stage, the policy has a value if it is cancelled that increases the longer the policy is in force.

For some policies the insured amount increases with bonuses declared by the insurance company.



LIVING INSURANCE

Critical illness


Pays a lump sum when the individual suffers from one of a number of medical conditions listed in the policy (e.g. cancer, stroke, heart attack).


Total and permanent disability (TPD)


Pays a lump sum if your disablement is total and permanent and you are unlikely to be able to do your usual or similar work again.


Disability income


Pays a regular income to replace your usual income when you can’t work because of sickness or disability.  Usually a maximum of 75% of pre-disability income is paid.  You can choose a ‘waiting period’ until the insurance is paid and a maximum payment period (e.g. 2 years or up to age 65) that will affect the premium you pay.


Home loan insurance


Pays your mortgage or mortgage repayments if you die or are ill or disabled.



BUSINESS INSURANCE

Business insurance is the use of personal risk insurances to provide payments for the cost to a business of the sickness, disability or death of an owner or key employee.



PERSONAL RISK INSURANCE TERMS


Life insurance

Sometimes refers to all types of personal risk insurance including disability and disability income


Living insurance

Covers all insurance that pays a benefit on illness or disability – used to differentiate from life insurance which is payable only on death or terminal illness.


Critical illness

Also called

  • trauma
  • crisis cover
  • major illness
  • critical condition

Total and permanent disablement

Also called

  • TPD
  • disability cover

Disability income

Also called

  • income protection
  • income replacement
  • income cover
  • total temporary disablement

Home loan insurance

Also called

  • Mortgage insurance


About us

The Financial Services Council (FSC) represents investment and life insurance companies in New Zealand.

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Services

Contact us

Ph: 021 0233  5414

Email: fsc@fsc.org.nz

PO Box 99581 Newmarket
 Auckland

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