You can insure your dog, your phone and your life. You can even take out cover for the inevitable day you shuffle off this mortal coil. But do you really need to, Christopher Walsh asks?

Insurance. We’re saturated in it, but despite all the choice it never seems to be cheap. Take out car, home, life and pet insurance policies and you won’t get much change from $5,000 a year. Insurance is an insidious expense that can cost even a low-risk Kiwi household up to $100,000 over 25 years.

At $2200 to treat a chipped tooth on a cat, the temptation is to try and cover yourself for every eventuality life throws at you. But consider the case of pet insurance: It will cost you anything from $20 to $120 a month depending on the policy and type of pet you have, and it will exclude many things – such as pre-existing conditions (known or not), infectious diseases, and anything routine or preventative.

Sometimes self-insuring is a better option. Below I look at five types of insurance in particular, and consider whether you really need them.

Life Insurance

Life insurance is peddled by seemingly every insurer throughout the land of Aotearoa and onsold by banks, mortgage brokers and even Countdown supermarkets. Life insurance is designed to eliminate the financial consequences of dying early by paying out a fixed sum to cover debts and obligations. Premiums for $500,000 worth of cover cost around $400 to $900 per year for a 30-year-old non-smoking male or female.

It might be simple and effective, but MoneyHub believes many people buy policies they don’t need or over-insure on the benefits. As an example, if you’re single and have no dependents life insurance probably isn’t worth your time and money.

Do I need it?

• Ask yourself, if I died tomorrow, who is going to be financially worse off? If the answer is no one, you most likely don’t need life insurance.
• Life insurance, in our view, is best for those with kids, mortgages and other long-term financial obligations, and best avoided for those who are debt-free or single.
• Life insurance can be lucrative for mortgage brokers and banks who actively sell it, but specialised life insurers often provide the best value. Ultimately, deciding whether to take out a policy will take some thinking time and should not be rushed.

Income Protection Insurance

Unlike life insurance, ​it doesn’t matter whether or not you have children or other dependents – if a period of time off work means you couldn’t pay your rent, mortgage and/or other bills, income protection insurance is well worth considering.

However, despite the benefits, it’s definitely not for everyone and the cost of a policy doesn’t come cheap. As an example, a 35-year-old male non-smoking office worker earning $100,000 a year and insuring for a 75% of gross income payout will pay between $700 and $1,000+ for a policy. Those in office jobs tend to pay less than trades or outdoor jobs, as the risks of injury is lower.

The self-employed working in trades pay a lot more as the risk of injury or illness is higher – the same $100,000 male working as a builder would usually pay between $1,000 and $1,500 per year for the same cover.

Do I need it?

• It depends on your financial situation and job type. The question is, if you developed back problems or an illness like cancer and couldn’t work, would you be able to cover your everyday bills and expenses?
• Importantly, ACC does not cover lost income due to illness, and four out of five long term absences from work are due to illness and not injury.
• New Zealanders who are self-employed and don’t have sick leave to fall back on are most at risk of being financially disadvantaged should time off work be needed.
• Self-employed people are, generally, the most at risk of being unable to work due to injury, and therefore it’s more appropriate for them to consider such an insurance policy.
• If you have a supportive family you could rely on should the worst happen, income protection is less of a need.
• MoneyHub’s income protection insurance guide has more information.

Contents Insurance

Frequently hawked as a must-have by insurers, contents insurance isn’t as useful as you may think and can come with high excesses. Unless you own a lot of stuff worth over $500 individually, the cost versus the benefit is a challenge. In addition if you’re a homeowner, adding contents insurance to a home insurance policy can rocket up the annual premiums. MoneyHub’s recent research estimated that the average home and contents policy cost around 25% more than a home-only policy for six insurers for homes New Zealand-wide.

For $25,000 worth of contents with no additional specific items, a policy can cost around $350 to $600 per year depending on where you live. Excesses range from $250 upwards.

Do I need it?

• It depends on what you own, and what you can afford to replace. If you’re studying for four years and you take out a contents policy it will cost you around $1,500 over that period, but your only assets may be a laptop and a cheap phone. It could seem hardly worth it.
• The best way to answer this question is to take an inventory of what you own. If you determine an item to be an essential must-have and you couldn’t afford to replace it tomorrow, then it’s a stronger case for insurance. But with laptops going for $400 (which can be as much as a policy’s excess), it may be hard to justify the ongoing cost if you don’t own expensive stuff.

Phone Insurance

Phone insurance is a relatively new product, and currently only offered by Spark, Vodafone and Cove Insurance. As you would expect phone insurance protects you if your phone is lost or stolen. Later on if your phone is out of its warranty period phone insurance can cover the cost of any repairs should it develop a fault.

However it’s not a cost-friendly product. Premiums are around $12 to $16 per month, adding up to $150-200 per year, per phone. An excess of $150 to $250+ will apply if you make a claim. If you claim too many times the insurer has the right to cancel your policy. If you don’t claim at all during the life of the phone self-insuring will most likely be cheaper. Worst of all, the wheels of phone insurance move slowly. You can wait days or weeks for an assessment and repairs, whereas local phone repair shops can solve many problems with same-day service.

Do I need it?

• If you have a ‘low-value’ phone, i.e. under $500, phone insurance probably isn’t going to be cost effective – you will pay around $400 over two years, even if you don’t claim.
• However, if you own a new phone, such as a $1,900 iPhone or $1,700 Samsung, ask yourself – can you afford to buy another one if you lose or break it? If the answer is no, then paying around $12 to $16 for phone insurance may be a sensible option. In such cases the $150 or $200 excess will most likely be cheaper than paying for repairs on a brand-new phone with a third party.
• See MoneyHub’s phone insurance guide.

Funeral Insurance

Famous for their incessant daytime adverts, the purveyors of funeral insurance promise a magical send-off into the afterlife, all for a set dollar amount per week until you die. For a $10,000 funeral it will cost a 50-year-old non-smoking man around $500 a year.

Sure everyone dies, but does that mean you need funeral insurance? MoneyHub agrees with Consumer that there is a significant risk of overpaying. Quite simply we don’t like it, and we think there are better, cheaper and fairer alternatives.

Do I need it?

Probably not. Popular alternatives, which will most likely also be more cost-effective, include:

1. Prepaid funerals – prepaying your funeral lets you lock in a funeral at today’s prices, plan it in detail precisely as you want it, and minimise the financial and emotional burden on your family. Best of all, funds are held safely in trust for the sole purpose of paying for your funeral.
2. Funding from your estate – many banks can release money from the deceased’s bank account right after death (and before probate) to assist with paying the funeral invoice.
3. WINZ funding for funerals – income and asset tested, the most available is around $2,000; the exact amount received depends on the money or assets the person who died had.
4. Health insurance and life insurance policies – a limited number of these policies include funeral costs, although both options are not substitutes for funeral insurance and can be very expensive in their own right.

Ultimately, buying insurance is about limiting the risk should disaster strike. Despite there being a lack of general insurance providers in New Zealand, the market is competitive with challenger brands eager to sign up new customers. You can save money every year by following three simple steps:

Pay upfront – We continuously see many insurance policies which, when paid upfront for 12 months, offer 10% to 15% discounts for paying in full upfront, as opposed to paying fortnightly or monthly.

Compare before buying – Comparing insurance policy quotes is the best way to save. While the policy documents may be full of small print, ultimately the product delivers per its name – car insurance insures your car, life insurance insures your life. The only real differences are the excesses, perks and specific benefit levels.

Switch – Switching insurance providers as you near the end of a 12-month term is also a proven way to save, with many insurers offering cheaper policies for new customers. This means existing customers pay a form of ‘loyalty tax’. Switching is easy, free and worth the time if it can knock off $100 or $200 on a car insurance policy as an example.

Christopher Walsh is a researcher at MoneyHub.co.nz. This article does not constitute financial and/or insurance advice.