Key Takeaways
Mortgage protection insurance in NZ is a term people use for a few different types of cover that help keep the home loan paid if something goes wrong. Before you sign up for whatever is offered at the bank, it helps to know what each type of cover does and how they fit together.
- Mortgage repayment cover usually pays a monthly amount towards your home loan if illness or injury stops you working.
- Life cover can be sized to repay the mortgage if a borrower dies, and many policies also pay early on a terminal illness diagnosis.
- Income protection covers a share of your income, not just the mortgage, so the two covers do different jobs.
- Lenders usually require home insurance, but personal insurance like life cover or mortgage repayment cover is a choice you make for your own protection.
- An adviser can compare cover across insurers rather than only the option attached to your lender.
What is mortgage protection insurance in NZ?
In New Zealand, "mortgage protection insurance" is not one single product. People use the phrase for any personal insurance that protects a home loan. Most of the time it means one or both of the following.
Mortgage repayment cover
Mortgage repayment cover usually pays a set monthly amount if you cannot work because of illness or injury. The amount is generally linked to your mortgage repayments, and payments start after a wait period and continue for a benefit period, depending on the policy. Many policies limit the monthly benefit to a share of your income.
Life cover sized to the mortgage
Life cover pays a lump sum if you die, and many policies also pay early if you are diagnosed with a terminal illness. When the sum insured is set to match the mortgage, the payment can clear the home loan so your family can stay in the house.
Some people also add trauma cover, which can pay a lump sum on diagnosis of a listed serious illness such as cancer, a heart attack or a stroke. That money can be used for anything, including reducing the mortgage during recovery.
Do I need life insurance for a mortgage in NZ?
Lenders usually require you to have home insurance on the property before settlement, because the house is the security for the loan. Personal cover such as life insurance or mortgage repayment cover is generally your choice rather than a lending condition, although your lender or adviser may ask about your plans.
Whether you need life insurance for a mortgage comes down to a simple question: if you or your partner died, could the household keep paying the home loan? If the honest answer is no, life cover sized to the mortgage is worth considering. Our guide on how much life insurance you need in NZ walks through the full calculation.
Mortgage protection vs income protection
Mortgage repayment cover and income protection are both designed for when you cannot work, but they cover different amounts. The table below shows the main differences in general terms. Exact features vary by policy.
| Feature | Mortgage repayment cover | Income protection |
|---|---|---|
| Designed to protect | Your home loan repayments | A share of your income |
| How the benefit is set | Usually linked to your mortgage repayments, often capped as a share of income | Usually up to a set percentage of your pre-disability income |
| What the money can cover | Mainly the mortgage | Mortgage, bills, groceries and other living costs |
| Typical wait periods | Often a few weeks to a few months | Often a few weeks to a few months or longer |
| Who it can suit | People who mainly want the house protected | People who want their wider lifestyle protected |
Some people hold both. Others choose one, depending on their budget, savings and how much of their income goes on the mortgage. Income protection matters because ACC only covers accidents. If illness stops you working, ACC does not pay your income, which we explain in income protection vs ACC.
Very few people hold this kind of cover. Research commissioned by the Financial Services Council found only 6% of New Zealanders have income protection insurance, as reported by Chatswood.
Bank insurance when buying a house in NZ
When you take out a home loan, your bank may offer its own insurance. Some people take bank cover because bank cover is convenient. Consumer NZ's research found 15% of people bought life insurance through their bank, compared with 35% through an adviser or broker and 34% direct from an insurer, as noted in its life insurance guide.
Before you accept the first option, it is worth checking a few things:
- Is the cover linked to the bank? Some bank-arranged cover may need reviewing if you refinance with another lender. Check what happens to the policy if you move your mortgage.
- How was your health assessed? Read what you are asked when you apply. Answering every question carefully protects your claim later.
- What does the policy wording say? Definitions, wait periods and benefit periods can differ between policies.
- Can the cover grow with you? If you plan to upsize or have children, check whether you can increase cover later.
A mortgage protection checklist for first home buyers
Buying your first home is the moment most people think seriously about personal insurance. This checklist covers the main questions to work through before settlement.
- Home insurance: arrange cover for the property, as your lender will usually require home insurance before settlement.
- Life cover: decide whether you want the mortgage repaid if a borrower dies.
- Income or mortgage repayment cover: work out how long you could keep paying the mortgage if you could not work.
- Trauma cover: consider whether a lump sum on a serious diagnosis would help the household through recovery.
- Existing cover: check any cover you already hold, including work schemes, and whether that cover would move with you if you change jobs.
- Ownership and beneficiaries: make sure each policy is owned and set up to pay the right person.
If you are still planning your purchase, our first home buyer lending team can help with the home loan side while you sort the protection side.
How much mortgage repayment cover do you need?
A simple starting point is to look at your monthly mortgage repayment and ask how long you could keep paying that amount from savings if you stopped earning. The answer helps you choose a wait period, because a longer wait period usually lowers the premium if you have savings to bridge the gap.
Next, think about the benefit period. Short benefit periods can suit people who mainly worry about a few months off work. Longer benefit periods suit people who want protection against a serious illness that keeps them out of work for years. Your adviser can show how each choice affects the cost of your cover.
Joint borrowers and mortgage protection
When two people share a mortgage, each borrower's income usually matters to the repayments. A common question is whether to insure both people or only the higher earner.
If either partner's death or illness would make the repayments hard to manage, many couples choose cover on both lives. Life cover can be set up as separate policies or combined, depending on the insurer. It is worth thinking about what the other partner would need, not just the loan balance, especially if there are children.
How SHARE - The Advisory can help
We help home buyers and homeowners work out which mix of life cover, mortgage repayment cover, income protection and trauma cover suits their mortgage and budget. We compare cover across insurers and explain the policy wording in plain English, so you are not limited to the option attached to your lender. Learn more about our mortgage protection advice or contact us to talk through your options.
Conclusion
Mortgage protection insurance in NZ is really a set of choices about how to keep your home if illness, injury or death affects your household. Mortgage repayment cover protects the loan repayments, income protection protects a wider share of your income and life cover can repay the mortgage if a borrower dies.
Your lender will usually require home insurance, but personal cover is a decision about your own family. Compare options before you settle, check what happens to bank-linked cover if you refinance and review your cover as the mortgage changes. This article is general information only and is not personalised advice.
Frequently Asked Questions
What is mortgage protection insurance in NZ?
The term usually covers mortgage repayment cover, which pays towards your home loan if you cannot work, and life cover sized to repay the mortgage. Features vary by policy.
Do I need life insurance to get a mortgage in NZ?
Lenders usually require home insurance on the property, but life insurance is generally your choice. Many borrowers still take life cover so the mortgage could be repaid if they died.
Is mortgage protection the same as income protection?
No. Mortgage repayment cover is usually linked to your loan repayments, while income protection covers a share of your income that you can use for any living costs.
Should I take the insurance my bank offers?
Bank cover can be convenient, but it is worth comparing options and checking what happens to the policy if you refinance with another lender.
Does mortgage protection cover redundancy?
Most mortgage repayment cover is designed for illness and injury. Redundancy cover is less common, usually limited and may be offered separately, depending on the policy.