Does my insurance reflect the real cost of my family’s lifestyle?
Life insurance decisions are typically framed around repaying debts and replacing income. With income central to the conversation, it’s important for families to know what it costs to maintain their normal lifestyle and how long those costs would need to be covered if the unexpected occurred.
For most of us, living expenses are layered and interdependent. Some expenses like housing, food and transport are essentials, whilst others are discretionary — but none the less important in our lives. A well-structured life insurance policy should reflect the full picture rather than a bare minimum.
Housing: the foundation cost
In New Zealand, housing-related costs consistently absorb around 30% of average household income, making it the number one expense for most families. The mortgage is the headline risk so repaying debt is often a focus, but this doesn’t remove any of the other costs of home ownership which will continue long-term, such as utilities (power, water, and internet), council rates, house and contents insurance, and maintenance and repairs.
Insurance planning needs to reflect the reality that housing expenses continue long after debt is repaid, so even if insurance makes you mortgage free, it’s important to ensure the surviving family have a sufficient income to cover the other costs.
Feeding the family
A typical 4-person family in New Zealand now spends on average $300 per week on groceries. This figure excludes eating out, takeaways, and the incidental purchases we all make, so in reality the figure is often much higher. With rising food prices and the increasing appetite of growing children, feeding a family is a significant long-term financial commitment.
Vehicles and transport
In most of New Zealand having a vehicle is essential. With 65-70% of cars purchased on finance in addition to the ongoing costs of fuel, servicing, insurance and Rego, vehicles represent an unavoidable and ongoing significant family expense.
Lifestyle and discretionary spending
Many families invest heavily in their quality of life. Holidays, dining out, sports, gym memberships, subscriptions, and recreational activities are not luxuries, they are a key non-negotiable aspect of their active lifestyles and how they unwind, connect, and maintain wellbeing.
These lifestyle expenses are often the first expenses to get cut following death or disability if the financial plan does not adequately account for them. This serves to compound the impact of the situation on the family as the changes and compromises to lifestyle are experienced. Life insurance should allow your family to maintain their standard of living and keep doing the things they enjoy.
Education and future commitments
Education costs are another frequently underinsured area. Whether funding daycare, private schooling, tutoring, extracurricular activities, or future tertiary education, these are long-term financial commitments. Life insurance allows families to lock in the ability to honour educational plans already set in motion.
The incapacity of a parent will also often significantly impact the usual daycare or school drop-off/pick-up routine. This can result in a reduction in working hours to the remaining income earner, or the addition of extra childcare fees, compounding the loss of household income.
Other considerations
Disability can increase costs at the same time income reduces. Having the financial means to get the right physical and emotional support so you can focus on treatment and recovery should be a priority, not a luxury.
To check that your life insurance still makes sense for your family and lifestyle, contact Andrew at Tidal Life & Health.
This article is general commentary only and does not constitute personalised financial advice.
