Suicide and taxes are amongst the most ‘googled’ terms when looking for life insurance, as there is a lot of confusion and misinformation about how they might affect your life cover. Life insurance is already considered complex and confusing, so it’s no wonder there is a misunderstanding about these tricky concepts.
(Googling these terms also brings up grim reading about the effect of debt on mental health, that’s a whole different topic and not one we are covering here!)
Let’s try and keep this simple and easy, so that you can be reassured you know how your policy is affected.
Suicide and Life Insurance
There is a common belief that if the cause of death is by suicide, life insurance will not be paid out. This is, in fact, incorrect.
Life Insurance pays for any kind of death, including suicide. However, it is typical for policies not to cover suicide for the first 13-months of the policy. The main reason for this is to make sure that anyone having suicidal thoughts isn’t influenced by thinking that their family will be financially looked after if they’re gone. Giving them another reason to think their family will be better off without them, which is most certainly unlikely to be the case, is what’s trying to be avoided.
When you apply for life insurance, it is standard that health and lifestyle questions will be asked, including questions about mental health, depression, or suicidal thoughts. You should answer these truthfully, like all questions asked by your life insurance company. If you are not honest, it may void your policy at some point in the future. And remember, just because you may have had struggles in the past, it doesn’t mean you won’t be able to get cover now or in the future.
If you are worried about your mental health or someone else’s, the best place for help is your GP, or if you’d rather talk to someone else, there are several alternatives listed at the end of this blog.
Taxes and Life Insurance
No one likes to pay tax! But we all like the benefit of publicly provided services like rubbish collectors, libraries, schools and hospitals. In the same sense, no one likes paying insurance premiums, but we do like knowing our family and loved ones will be financially looked after if we couldn’t, if the worst were to happen.
The good news is that you don’t pay income tax on a life insurance pay-out! And in NZ, we don’t have an estate tax, so there’s no chance of that affecting your policy either. This means your loved ones should receive the total amount of your policy on your death.
The only time that may not happen is if a trust or a company owns your policy. Then it can get a bit more complicated. In these cases, you’re best to get some professional tax advice about your specific situation.
Life Insurance is not as complicated as you may think. Best of all, once you’ve got it, you can pretty much forget about it. Hopefully, for your sake, you won’t ever need to claim on it either. But if you die or become terminally ill, you’ll know that the people who matter to you will be well looked after.
If you need help getting started or want more information and some tools to work out what is best for you, check out our ‘help me choose’ or advice pages.
• LIFELINE: 0800 543 354 (0800 LIFELINE) or free text 4357 (HELP) (available 24/7)
• Suicide Crisis helpline (part of LifeLine): 0508 828 865 (0508 TAUTOKO)
• YOUTHLINE: 0800 376 633
• NEED TO TALK? Free call or text 1737 (available 24/7)
• KIDSLINE: 0800 543 754 (available 24/7)
• WHATSUP: 0800 942 8787 (1pm to 11pm)
• DEPRESSION HELPLINE: 0800 111 757 or TEXT 4202
