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How does Life Insurance work?

How does Life Insurance work?

If you’re reading this, you’re likely thinking about getting life insurance. We’re here to help you understand what it is, how it works, and what you’re covered for. Continue reading this guide to get more of an understanding about life insurance before making your decision.

What is Life Insurance

Life insurance is a type of insurance that will pay out if you were to die or become terminally ill. It pays a tax-free lump sum of your chosen cover amount help your loved ones cope financially as they adjust to life without you. This helps to afford your funeral, continue paying expenses (because they don’t stop!), and not feel financially stressed during an extremely hard emotional period.

Essentially, life insurance covers the risk of losing a person and the impact of a financial loss. Whereas other insurances are associated with the risk of a car crash, (car insurance), the risk of your pet getting sick (pet insurance), the risk of a health issue (health insurance), and the list goes on.

How Life Insurance works

Life Insurance can work differently depending on what country you’re in, so we’re just focusing on how it works here in New Zealand. At application time policyholders (that’s you) select an amount of cover (for example $350,000). You then pay premiums and in return, the insurance provider (companies like us) provide a lump sum payment of the chosen amount (that $350,000) to your beneficiaries if you were to pass away or become terminally ill.

How do you decide premiums?

Now that you know that life insurance covers the risk associated with losing a person, you’ll also appreciate that covering risk comes at a cost, which is how we decide premium amounts. Premiums are the monthly amount you pay to have life insurance cover (just like you’d pay for your car insurance). Premiums are decided based on the risk an insurance company sees you as having. This is why you are asked questions about your health, family history, age, and more as part of your application process. Most insurance companies do this application in person or over the phone, but if you choose Pinnacle Life you can complete this all online (and be covered in less than 10 minutes).

What does life insurance cover you for?

Now that you know what life insurance is for, let’s dig into the nitty-gritty of what you’d be covered for. Because life insurance is a contract between you and an insurance company, you should always receive a policy document with all the information specifying exactly what you’re covered for and what you’re not. Any life cover policy will cover you for any cause of death ranging from terminal illness to accidents. A standard exclusion is suicide within the first 13 months of activating your policy. However, this blog is only going to give you a general idea of what life insurance covers and can be different between insurance providers, so we highly recommend reading your policy document to understand what you are and aren’t covered for with each company.

These are the basics of what life insurance covers. On top of that, each insurance company may add extra benefits to their plans. This impacts premium prices. Some companies have the ‘full works’ which means their policy includes additional benefits like adding children to your policy and access to grief support after someone's passing. Other companies have less of the ‘glam’ to have a simple and more affordable product. We like to think we are a happy middle-ground offering the perks we believe customers use while being one of the more affordable life insurance companies in New Zealand.

At Pinnacle Life we, in addition to Pinnacle Life’s standard life cover, offer add-ons of Critical Illness cover and Disability cover. These additional products provide extra cover based on what you might be worried about. Our critical illness cover provides an early payout if you are diagnosed with one of the twenty-four conditions covered. Our disability cover focuses on protecting you if you become permanently unable to work due to accidents or illness.

How do I know I’ll get paid out after I’m dead?

You may notice that life insurance companies rarely have a 100% claim rate, meaning they haven’t paid out all the claims that have been made. This is usually can be put down to two things, non-disclosure and fraud. Non-disclosure references when people aren’t truthful in their application process, and fraud references when there is a false claim that usually needs to be followed up with the police. Genuine claims are usually paid without any hiccups. Pinnacle Life is proud to have paid 96.2% of claims since 1998 (as of 14th February 2024), you can read more about the importance of claims here, if you’d like to learn more.

How do I get started?

If you feel inspired and ready to take action to get life insurance, we’re here to help. You can get a quote in 30 seconds, and continue the application to be covered in 10 minutes. If you want to talk to someone or want a hand with the application process, our team is available 8 am - 7 pm, you can reach them on 0800 22 22 23 or email If you still want more information on choosing the right insurance for you, read this blog that will take you through the steps of getting covered.

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