Change in income? How should that affect your life insurance?

Change in income? How should that affect your life insurance?

A pay rise is something most of us like to daydream about. It's exciting to think about a better car, nicer clothes, more eating out or takeaways, a holiday. It's usually not very hard to come up with a list. However, when our income decreases, we do a lot less daydreaming and more serious thinking and planning. We recommend that you only have as much life insurance as you can afford, so if your income changes either up or down, you should also think about your life insurance.

Life Insurance and a pay rise

Once the headiness of knowing you'll be earning more money has passed, you should get serious about your new situation. Of course, it's easy to spend all the extra money you're earning, but that's the last thing you should do, at least from the second paycheck!

A pay increase is a good trigger for reviewing your financial situation and making or redoing a budget. Think about things like how you could:

  • clear your debt – mortgage payments and credit card debt,
  • save more – make sure you have a bit of money set aside for emergencies,
  • increase your Kiwisaver contributions – plan for the future and your retirement.

But it would help if you also thought about whether you've got sufficient cover to keep your family protected should the worst happen. Having more income might mean you can afford more in premiums and have more coverage for your loved ones.

If you need advice about how much would suit you and your family, check out our advice tool. If you want to increase your amount of cover, you can get a quote here or find out how much you could save by switching to Pinnacle Life if you're not with us already. If you use your increased income to buy a house or leverage other debt, make sure you factor this into your life insurance calculation.

Suppose you've already got Income Protection with us. In that case, the super good news is that if you let us know within 60 days that your income has gone up, we may be able to give you a proportional increase without additional information.

From double income to single income

There are a few reasons when you might go from a double income to a single income; the most common is taking time off from working when you have kids or separating from your partner.

Having children is a bit of a hit to both sides of your balance sheet – expenses go up, and income goes down. So, it's another excellent time to reconsider and reprioritise your budget. First, take some time to think about what your family would need financially if you were no longer there to look after them. This might mean thinking about who would stay home and look after the kids, would there be enough money for food and rent or the mortgage, or whether you want to leave money behind for education or family holidays. That's where life insurance comes in, so even though your income may have gone down, you should still think about reprioritising how you're spending your money.

There's rarely anything fun or simple about family break-ups. Going from a family income to separate households and single incomes can be financially crippling. Take time to review your budget and think about your future, consider what you would want for your kids if something happened to you. Even a tiny amount can make a big difference to their independence, so think about how much you may be able to set aside and pay in premiums. Even more importantly, think about how you would support yourself if you were to get sick and couldn't work.


Hopefully, by the time you retire, you are mortgage-free, and the kids have all left home. But, of course, this drastically changes your need for cover. Which is a good thing because as we get older, the risk of us getting sick or dying increases, and premiums rise with that risk. What that means is that by the time you retire, you should be in a position to have only minimum cover, enough to make sure your family won't be burdened in any way by your departure, or none at all.

There are other ways your income can change, for example, going from a regular salary to freelancing or commissions, but hopefully, we've covered off the most common. The critical thing to remember is that any change in income is a reminder to reconsider your financial situation to make sure you've got everyone looked after, and your future secured. So if you're comfortable you've done that, then go right ahead with booking that holiday.

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