How much cover does your household actually need?

The four covers, in plain English

1. Life cover. Pays a lump sum to your beneficiaries if you die. Use case: clearing debt and replacing your income so the rest of the household keeps living roughly the way they live now.
2. Trauma cover (also called critical illness). Pays a lump sum on diagnosis of a defined serious illness or event (cancer, heart attack, stroke, major surgery, etc.). Use case: paying for treatment not covered by ACC or public health, time off work, and household adjustments.
3. Income protection. Replaces a percentage (typically 75%) of your income if you can't work due to illness or injury, until you can or until age 65. Use case: keeping the bills paid through a long-term recovery.
4. Total and Permanent Disablement (TPD). Pays a lump sum if you're permanently unable to work in your own occupation (or sometimes any occupation). Use case: paying for home modifications, ongoing care, and the loss of long-term earning capacity.

The five lines of math

1 · Life cover

Formula:

Life cover = Outstanding mortgage + Other debts + Dependants cost to independence + Funeral & wind-up costs − Existing assets available to the household

Where dependants cost is roughly: (number of dependent children) × (years until each reaches independence) × ($25-40k per child per year). The range reflects whether the surviving partner returns to work, the household's spending base, and any childcare cost.

Funeral & wind-up costs: $10-20k, conservative.

Existing assets available: KiwiSaver (excluding the 5% that must remain for first-home protection), other investments, life policies through employer (if applicable), and any insurance benefit through KiwiSaver if it exists.

2 · Trauma cover

Formula:

Trauma cover = Year-one treatment buffer + Lost income during recovery + Household reset buffer

Typical values:

1. Year-one treatment buffer: $50-100k (private treatment, accommodation if treatment is out of region, gap costs).
2. Lost income during recovery: 12 months of net household income that won't be covered by sick leave or income protection waiting periods.
3. Household reset buffer: 1-3 months of mortgage and bills (allows you to pause work obligations without panic).

Typical sum insured: $100-250k per adult, weighted by who earns more.

3 · Income protection

Formula:

Monthly benefit = Pre-tax monthly income × 0.75 (or the maximum your insurer allows, usually 75%)

Then choose:

1. Wait period (also called deferral period). 4, 8, 13, 26, 52, 104 weeks. The longer the wait, the cheaper the premium. Should match how long you can survive on savings + sick leave. For most working households, 8 or 13 weeks is the sweet spot.
2. Benefit period. 2 years, 5 years, or to age 65. Premium roughly doubles between 2 years and to-65. We recommend to-65 for households where the income earner is the sole or main contributor.
3. Indemnity or agreed value. Indemnity is cheaper but recalculates the benefit based on actual recent earnings at claim time. Agreed value locks in the benefit. For salaried PAYE earners, indemnity is fine. For self-employed or commission-based, agreed value is usually worth the premium.

4 · TPD cover

Formula:

TPD cover = Home modification cost + Ongoing care cost buffer + Mortgage-clearing component (if not already cleared by income protection or trauma)

Typical sum: $300-600k.

Watch the definition: "own occupation" TPD is more useful and more expensive; "any occupation" pays out only if you can't work any job at all and is much harder to claim on.

5 · Adjust for ACC

ACC covers injury, not illness. So:

1. If you're injured, ACC pays 80% of your income, indefinitely. Your income protection policy pays the gap above ACC, and only kicks in fully if you're ill rather than injured.
2. If you're self-employed, you can elect ACC CoverPlus Extra to lock in your income level for ACC purposes. Worth doing if your variable income makes the default ACC calculation unhelpful.
3. ACC does not pay lump sums on death, so life cover is independent of ACC.

The cover worksheet

Fill in the numbers. The PDF version includes a worksheet, but here's the structure:

What we usually recommend, by life stage

Genuinely illustrative. Real recommendations depend on income, debt, dependants, existing cover, and risk appetite.

1. Mid-20s single, no debt, no dependants. Income protection only. Life cover not yet useful. Trauma optional if family history.
2. Late-20s couple, first house, no kids. Life cover sized to clear the mortgage. Trauma for each. Income protection for the higher earner. Skip TPD until kids arrive.
3. Mid-30s family, two kids, mortgage. Full stack. Life cover sized for mortgage + dependants math. Trauma for each adult. Income protection on both incomes if both earn. TPD for the higher earner.
4. Mid-40s, mortgage-light, teenage kids. Right-size down. Life cover drops as the mortgage drops. Trauma stays. Income protection stays until 60-65.
5. Late-50s, mortgage paid, kids independent. Most cover can be cancelled. Some retain a trauma policy as a self-insurance overlay. Keep medical cover.

Red flags in your current policy

1. "Stepped" premiums you didn't choose. Most policies default to stepped (rising with age). Level premium is more expensive now and dramatically cheaper later. Worth modelling.
2. An income protection benefit period of 2 years. Short benefit periods are cheap precisely because they're the policies that pay out the least.
3. An ACC-offset clause you didn't notice. Some policies reduce their payment by 100% of ACC income, which can mean an injured claimant gets almost nothing from their income protection. Worth checking your wording.
4. Cover bought through KiwiSaver. Convenient, but the cover sums are often inadequate and the wording often weaker than a standalone retail policy.