Life insurance, and why your family can’t ‘just sell the house’

Have you ever heard a friend or family member say this?

'I don't need life insurance. If I die, my family can just sell the house!'

Here's why it's not that simple.

Did you know it takes an average of 44 days to sell a house? That's according to The Real Estate Institute of New Zealand's June 2022 data.

Meanwhile, a funeral is typically held within 7 days of a person passing away, which costs an average of $10,000 according to Consumer. However, New Zealand funeral insurers Cigna, AA Life, Momentum Life, and New Zealand Seniors cover up to $30,000, suggesting the cost could be more.

Work and Income offer a funeral grant of up to $2280.72, which is subject to income limits, with the maximum income cap set at $47,310.12.

Selling a house could include signing with an agency, holding weeks of viewings & open homes, negotiating offers, negotiating conditions of the sale & purchase agreement, discussing & signing the agreement with your solicitor, and making sure conditions are met to go unconditional. According to Settled, the money for the deposit is typically paid to a trust account, then to the lawyer or conveyancer after 10 working days, then to the agent to take their commission before the remainder finally goes to your family.

Have you thought about how much money your family would have left over after paying for the real estate agent's commission? With real estate commissions commonly at 4% for the first $400,000, then 2% for the remainder, your family may pay $28,000 for a house that's worth $1,000,000!

That's on top of the money your family may need to spend to repair the house before listing it for sale, administration fees, and solicitor fees.

The process of selling a house seems difficult enough as it is even when you're not grieving the loss of a loved one. Are you sure you want your family to have to do this while they are grieving? Why not make sure that your family is taken care of financially in a much easier way?

Your life insurance should help cover your funeral expenses, your mortgage if you have one, any other debt you might have, and your lost income. Consider your family's lost income, too, as they may need to take time off work to grieve and sort out your estate.

If you are considering cancelling your life insurance policy and taking out a funeral insurance policy, consider that many new funeral insurance policies come with a typical one to two year standdown period in which you are covered only for accidental death. You will have to wait until after this period to be covered if you pass away from natural causes.

Different funeral insurers will have a refund policy around this - some will refund you your premiums if you pass away from natural causes within the standdown period, and some will not. It's important to ask about this when signing up to a new funeral insurance policy, or if you've already got one.

Instead of cancelling your life insurance policy and starting a funeral insurance policy, you may wish to keep your life insurance policy, but reduce this down to the amount of money you would want your family to have to cover the funeral. This way, you'll have the peace of mind of knowing your loved ones will be financially safe and taken care of, even when you're no longer around. After all, it’s your final way of telling your family, ‘I got you’.

Sophia