It’s wise to protect your health and your wealth

Imagine you’ve recently retired, your home is mortgage free, NZ Super is flowing into your bank account, you’re enjoying good health and you’re looking ahead to some exciting years travelling before settling down into peaceful old age. Oh, and you also have a respectable retirement nest-egg, some of which you’ll use to fund your trips and the rest to supplement your NZ Super.

It all sounds pretty good. But skip forward a couple of years and imagine that your ideal state is shattered by your partner receiving the unexpected diagnosis of an aggressive cancer. Because the recommended treatment isn't publicly funded, you must use most of your retirement nest-egg to pay for it. Soon you may need to start eating into the equity in your home. Your happy retirement just vanished, along with your financial security.

Could this worrying financial disaster have been avoided? Could you have protected your retirement nest-egg?

The answer is probably yes - if you had suitable health insurance. Maybe you had health insurance but unfortunately you had to cancel it because it was getting a bit expensive. Anyway, you thought your health was fine so there didn't seem to be any point. Ironically, you probably hadn't cancelled your house, contents, or car insurance, and yet your retirement nest-egg was also an asset that was probably more valuable than your car and contents combined.

The fact is that the right health insurance policy can actually help to protect your wealth, especially against the costs of treatments not funded or not funded quickly enough, by the public health system/Pharmac. This becomes very real in retirement when poor health is statistically even more likely. Let's face it, returning to work to earn enough to recover your finances probably won't happen.

Unfortunately, the costs of treatments approved for use in New Zealand but not publicly funded, can be alarmingly high. They can quickly erode even relatively large retirement nest-eggs, and ultimately put the family home at risk, too.

Here's something else to think about. Medical treatment bills may become more frequent as we get older. Gaining quick access to treatment in the public health system is less likely as the system struggles to cope. Private medical insurance, even with a large excess, suddenly seems like a very sensible idea.

Of course, poor health can, and does, strike at any age. The ideal strategy is to get health insurance when we're young and, for most people, our health is still in good shape, making acceptance of cover almost certain. The health underwriting requirements and maximum entry ages can make acceptance of applications for health insurance tricky, or even impossible once you're retired.

It's true that premium costs can be a barrier as we grow older. However, there are ways of significantly cutting some health insurance premiums by removing options and selecting a high excess. One handy idea is to put a little extra aside from an early age to fund health insurance premiums in retirement.

Taking a knee jerk approach and cancelling life, trauma or health insurance on retirement is not always the right answer, even for wealthy retirees. Having appropriate health insurance can help protect your wealth. With the right financial advice and policy structure, it can continue to be affordable even at a ripe old age. You might also wish to have some trauma cover in retirement, to fund expenses associated with severely poor health not covered by health insurance. There are trauma products available in New Zealand that only cover severe trauma events – the kind that could have major wealth-destroying, financial consequences – with significantly lower premiums, making trauma insurance more affordable in retirement, too.

Insurance advice for New Zealanders is essential, but it is especially critical for those of us who are retired.

DISCLAIMER: This article is intended to provide general information only and is not financial advice. Please consult your Financial Adviser if you need advice. Terms, conditions and underwriting criteria apply to all Partners Life products.