What to do about the problem of uninsured Kiwis? Every day at least one New Zealander finds him or herself unable to work because of illness and with no way to pay the rent, mortgage, or other bills. Or they die, leaving loved ones in the financial proverbial.
Kiwis are woefully underinsured when it comes to their life and health. They think "it won't happen to me", or that ACC or Work and Income will provide. They will. But not necessarily enough in the case of Work and Income to keep people in the manner they're accustomed to.
AMP KiwiSaver thinks it has the answer. It has come up with AMP Essentials, a simple add-on insurance to KiwiSaver, which at the most basic level provides $100,000 of life cover, a $10,000 lump sum for specified serious illnesses, injury or medical procedures and $2000 per month temporary disablement cover.
Therese Singleton, general manager of investments and insurance at AMP, says we have one of the lowest rates of insurance in the OECD. "Only 55 per cent of New Zealand adults have life insurance and only about 21 per cent have income protection or a type of trauma/disability insurance," she says.
Trauma insurance pays out a lump sum on diagnosis of specified illnesses such as cancer and heart disease. Disability insurance covers both illness and accident.
In the case of AMP's policy it is cancelled out by ACC. But Kiwis are far more likely to be disabled by illness than an accident.
Singleton says the majority of families are still vulnerable to adverse events relating to death, disability or illness, and most of us don't see it coming.
The main barriers to taking out this type of insurance are cost, access and awareness. She believes the answer is to provide simple cover alongside KiwiSaver, which most people are signed up for. AMP's cover starts at $11 a month.
Something is better than nothing when it comes to insurance that could save your financial bacon, providing it's not mis-sold to someone who could never claim.
A $100,000 life insurance payout won't keep the family in luxury for the rest of their lives. But it will pay for time off work for a surviving partner or reduce the mortgage. In a country where the average person is three pay cheques away from financial disaster, that would be a godsend for many.
Chances are this is the first of many such insurances associated with KiwiSaver. It's common overseas for insurance to be linked to pension schemes. More flexible policies are likely to emerge, allowing customers to pick and choose the cover they need rather than having them bundled.
KiwiSavers do need to beware, however, says Robert Oddy, chairman of SiFA, the professional body for independently owned financial advice practices. If insurance premiums come out of their KiwiSaver contributions as similar schemes do overseas, their retirement income could take a hit. What's more, the overseas experience is that the insurance tacked on to retirement schemes is cut down from standard policies offered by the same providers.
Obviously insurance companies aren't doing this out of a charity. There's money to be made selling add-on insurances and it's almost a surprise that it hasn't happened en masse, although there are government restrictions on bundling insurance with KiwiSaver.
Mercer KiwiSaver has an innovative insurance offering underwritten by Cigna Life Insurance. SaverProtect is designed to protect KiwiSaver contributions of up to $200 a month if Mercer KiwiSaver customers are unable to work due to illness, injury or redundancy.
It's a different approach to AMP, but valuable for members who wouldn't otherwise be insured. SaverProtect policy covers redundancy and bankruptcy, which the AMP product doesn't. But Mercer's cover doesn't include a life insurance policy or lump sums.
The AMP policy also puts money in the claimant's bank for him or her to spend as they see fit, whereas the Mercer policy only covers KiwiSaver contributions.
In an ideal world people would visit an insurance broker (aka financial adviser) and get a policy tailored to their needs. Some people need more cover than others, and don't realise that fact. Needing it, of course, doesn't mean they can find the money to pay the premiums, even if that should come before more gratuitous spending.
One heart-warming aspect of the AMP policy is that it doesn't exclude pre-existing conditions. Such an exclusion means that if you've suffered from a condition before you took out the insurance you won't be covered.
Most insurers exclude previous illnesses for life, although the better policies only count it out for five years. AMP has decided not to exclude such illnesses and spread the risk of doing that across all customers. Its only exclusion is that it won't cover anyone who has been told by a doctor that they have an illness that could result in death within 12 months.
Broad pre-existing conditions clauses can be trickier than former President Nixon, so it's a decision that should benefit its customers.
The advantage of being able to tick a box for insurance while signing up for KiwiSaver is that it will ensure that people who might not otherwise have been covered will have basic protection should their lives go awry.
The Trade Me experience, where life insurance is a tab across the top of the screen along with dating, holiday homes, vehicle reports and personal loans, has shown that availability through everyday retailers encourages people to buy cover. That will prove the case with KiwiSaver-linked insurance as well.
Another product on offer to KiwiSavers is $10,000 of "free" accidental death cover from Grosvenor KiwiSaver, which is enough to cover the cost of a modest funeral. I say "free" in inverted commas because customers are in effect paying for it through their KiwiSaver fees.
The Grosvenor cover doesn't require the customer to tick a box, says Diana Papadopoulos, the financial services company's head of sales and marketing.
I wrote last year about Countdown's bills payment insurance, also underwritten by Cigna, which is a simple income-protection policy that covers up to $2000 a month if the policyholder can't work because of illness or redundancy (tinyurl.com/supermarketinsurance).
Mercer KiwiSaver customers also have the option of a BillProtect policy that covers from $700 to $2000 a month for up to six months following a sudden loss of income. There is a 30-day stand-down period.
Russell Hutchinson, managing director of Chatswood Consulting, points out that KiwiSavers are able to withdraw their savings in the event of serious illness or financial hardship.
But the difference with insurance is that the person keeps their retirement nest egg and is paid out. So tying insurance to KiwiSaver is a good move for providers, he says.
And to anyone who doesn't have sufficient savings to survive without a job, or not enough money for loved ones to pay for their funeral and get by without your income - get insurance now.