What you should know when buying personal risk insurance


Answer questions completely and honestly

When you apply for personal risk insurance the insurer will ask a number of questions about your health so that the insurer can assess the likelihood of you making a claim and setting the premium.  You are obliged to answer these questions completely and honestly.  If you don’t, the insurer is entitled to refuse a claim on the grounds of ‘non-disclosure’ and not return premiums.

Policy wording

The policy wording is all-important in determining whether an insurance claim is paid.  This is particularly true of living insurances, e.g. disability income and critical illness where you need to meet the disability definition or actually be diagnosed with one of the critical illnesses before a payment is made.  You should either obtain the actual policy wording to compare policies and ensure that the chosen policy meets your needs or get advice from a financial adviser qualified to give advice on personal risk insurance to help you with policy wording.

Shop around and consider options

You should, of course, shop around to get the best deal when you decide to buy insurance.  Different companies’ policy wording (see previous section) may be similar but you should also consider the financial strength of the insurer if it comes to making a claim.

You should consider what other benefits and insurance you have.  Insurance provided through your employer is typically cheaper than individually arranged insurance and can generally be replaced by individual insurance when you leave your employer.  (However, you should check as you may be left without insurance if, e.g., you have to leave your employer for health reasons.)  If you have significant sick or other leave, a longer waiting period on a disability income policy will reduce the premium.

Financial strength ratings

All licensed insurance companies must give you their financial strength rating before you apply for insurance or, if they don’t have a financial strength rating, the reason why (typically if they are small insurers).  The financial strength rating will also be on the insurer’s internet site.  This will give you an idea of the present financial strength of the insurer.  If the financial strength rating is downgraded, the insurer must tell existing policyholders.

Changing insurers

While you should always be considering the best deal on your insurance, there are some things you should be aware of if you consider changing insurer.
  • The new policy wording may not be exactly the same which may lead to loss of options, new waiting periods or an unpleasant surprise when a claim is made.
  • Your health may have changed meaning that existing conditions may not be covered by a new insurer and a new insurer may impose new terms before accepting the insurance.  Your present insurer is bound by the terms of the present policy regardless of changes in your health.
  • If for any reason you forget to disclose all health information requested to the new insurer, you run the risk of the new insurer declining a claim.
  • If a financial adviser is recommending you change companies, ask what commission they will receive for the new policy and an assurance that the new insurance meets your needs at least as well in terms of price and features.
  • There may be options under your present policy or your present insurer may be willing to change it to meet your changing needs.


The following is an outline of the tax situation for premiums and payments.  Ask the insurer or adviser on the tax treatment of premiums and payments for particular policies.

Insurance Premium deductible?  Payment taxable?
Life N N
Critical Illness N N
Disability Income related to salary/wages Y Y
Disability Income agreed amount N N
Home loan N N

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

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Email: fsc@fsc.org.nz

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