10 Common Insurance Mistakes Kiwis Make | QuoteHub

By QuoteHub Editorial Team · Updated 2025-10-09

10 Common Insurance Mistakes Kiwis Make (and How to Avoid Them)

Insurance is one of the most important financial decisions you will make, yet it is also one of the easiest to get wrong. Many New Zealanders set up a policy, file the paperwork, and never think about it again. Others make choices based on price alone, or skip cover entirely because they assume ACC or their employer has them sorted.

The result is that thousands of Kiwi families are either paying too much for the wrong cover, or carrying far less protection than they actually need. In some cases, simple oversights can lead to claims being reduced or declined entirely.

This guide covers 10 of the most common insurance mistakes New Zealanders make, explains why each one matters, and shows you how to fix it. Whether you already have insurance or are shopping for cover for the first time, avoiding these pitfalls could save you significant money and stress when it counts.

1. Choosing the Cheapest Policy Without Comparing Features

The mistake

It is natural to compare premiums when shopping for insurance. But many people stop there. They pick the cheapest option without looking at the terms, conditions, exclusions, or benefit definitions that sit behind the price.

Why it matters

A cheaper premium often means a more restrictive policy. For example, one trauma insurance policy might cover 40 medical conditions while another covers 60, including early-stage conditions that are far more likely to result in a claim. The premium difference might be $10 a fortnight, but the gap in cover could be worth hundreds of thousands of dollars at claim time.

Similarly, two income protection policies may look identical on price, but one might have a stricter definition of disability, or a shorter maximum benefit period.

How to fix it

Compare policies on three levels: price, features, and claims reputation. Look at the Product Disclosure Statement (PDS) for each option, or work with an authorised financial adviser who can compare across multiple insurers. QuoteHub compares all major NZ insurers so you can see the differences side by side before making a decision.

2. Not Disclosing Your Full Health History

The mistake

When applying for insurance, you are asked detailed questions about your health, medical history, and lifestyle. Some people leave out conditions they consider minor, forget about past consultations, or deliberately withhold information because they are worried it will increase their premium.

Why it matters

Non-disclosure is one of the most common reasons insurers decline or reduce claims in New Zealand. Under the Insurance Contracts Act, insurers have the right to void a policy or refuse a claim if you failed to disclose something material, even if it was unrelated to the claim itself.

For example, if you did not mention a history of anxiety and later made a claim for a heart condition, the insurer could still investigate the non-disclosure and potentially decline the entire claim. The consequences are serious: you lose the cover you have been paying for, and your family misses out on the financial protection they were counting on.

How to fix it

Disclose everything, even things you think are irrelevant. Let the insurer decide what is material. If you are unsure whether something needs to be disclosed, mention it anyway or ask your adviser. It is always better to have a slightly higher premium or a specific exclusion than to risk having your entire policy voided at claim time.

3. Forgetting to Update Your Beneficiaries

The mistake

When you first take out life insurance, you name a beneficiary, the person (or people) who will receive the payout if you die. Many people set this up once and never revisit it, even after major life changes like marriage, divorce, or the birth of a child.

Why it matters

If your beneficiary details are outdated, the payout may go to the wrong person. Consider a common scenario: you took out life insurance while in a previous relationship and named your ex-partner as the beneficiary. You have since married and had children, but never updated the policy. If you pass away, the full payout could legally go to your ex-partner rather than your current family.

In New Zealand, life insurance proceeds are generally paid according to the policy nomination, not your will. This means your estate planning and your insurance beneficiaries can be out of sync if you do not actively manage both.

How to fix it

Review your beneficiary nominations every year, or whenever you experience a significant life event. Contact your insurer or adviser to update the details. It is a simple process that takes minutes but can prevent a deeply painful situation for your family.

4. Relying Solely on Group or Employer Cover

The mistake

Many Kiwis have some level of insurance through their employer, often group life cover or income protection as part of a workplace benefits package. Some people treat this as their only insurance, without considering the limitations.

Why it matters

Employer-provided group cover has several significant drawbacks:

If you develop a health condition while relying on group cover and then lose your job, you could find yourself uninsurable at the exact moment you need protection most.

How to fix it

Treat employer group cover as a bonus, not your primary insurance. Take out your own individual policy that stays with you regardless of your employment situation. An authorised financial adviser can help you structure your personal cover to complement any workplace benefits you currently have.

5. Ignoring Income Protection Insurance

The mistake

Life insurance gets most of the attention, but many Kiwis overlook income protection entirely. They insure their life but not their ability to earn a living, even though the statistical probability of a long-term illness or injury during your working years is significantly higher than the probability of death.

Why it matters

Your income is your most valuable financial asset. If you earn $80,000 a year and have 25 years until retirement, your total future earnings are $2 million. If a serious illness, injury, or mental health condition prevents you from working for six months, two years, or permanently, the financial impact on your family is severe.

ACC covers accidents, but it does not cover illness. If you are diagnosed with cancer, suffer a stroke, or develop a debilitating mental health condition, ACC will not pay your bills. Without income protection, you are left relying on savings, family support, or government benefits, none of which are likely to replace your full income.

How to fix it

Talk to an adviser about income protection as part of your overall insurance plan. It is often more affordable than people expect, particularly for office-based professionals. A policy that replaces 75% of your income with a four-week waiting period might cost less than your monthly streaming subscriptions. Learn more about how income protection works and why it is one of the most important covers you can have.

Ready to check whether your current cover has any gaps? Get a free insurance review with QuoteHub and an authorised adviser will assess your situation and show you where you might be exposed.

6. Choosing the Wrong Waiting Period

The mistake

Income protection and mortgage protection policies include a waiting period (also called a stand-down or excess period), the time between when you stop working and when the policy starts paying. Common options are two weeks, four weeks, eight weeks, or 13 weeks. Many people choose the shortest waiting period without considering the cost implications, or the longest one without considering whether they could actually survive that long without income.

Why it matters

A shorter waiting period means higher premiums, sometimes dramatically higher. Choosing a two-week wait instead of an eight-week wait could increase your premium by 40% to 60%. If you have enough savings or sick leave to cover eight weeks, you are paying significantly more for a benefit you are unlikely to need.

On the other hand, choosing a 13-week waiting period to save on premiums when you have no savings and no sick leave means you will have three months with no income before the policy kicks in. For many families, that gap would be catastrophic.

How to fix it

Match your waiting period to your financial buffer. If you have three months of living expenses in savings, an eight-week or 13-week waiting period makes sense. If you are living paycheque to paycheque, a shorter waiting period is worth the extra premium. Your adviser can model the cost differences for each option.

7. Cancelling Your Old Policy Before Your New One Starts

The mistake

When switching insurers, some people cancel their existing policy as soon as they apply for a new one. They assume the new policy will be approved quickly and seamlessly.

Why it matters

Insurance applications go through underwriting, which can take days, weeks, or even months depending on your health history and the complexity of your application. If your new insurer requests medical records, orders tests, or applies exclusions you were not expecting, there can be significant delays.

If you cancel your old policy before your new one is formally accepted and in force, you have a gap in cover. If something happens during that gap, whether it is a diagnosis, an accident, or a death, you have no insurance at all.

This is one of the most dangerous insurance mistakes you can make, and it is entirely preventable.

How to fix it

Never cancel your existing policy until your new policy is fully underwritten, accepted, and in force. This means you will pay premiums on both policies for a short overlap period. That overlap is a small price to pay for continuous protection. Your adviser will manage this transition for you and confirm exactly when it is safe to cancel the old policy.

8. Not Reviewing Your Insurance Annually

The mistake

Insurance is not a set-and-forget product. Yet the majority of New Zealanders treat it that way. They take out a policy, set up a direct debit, and do not look at it again for years.

Why it matters

Your life changes. Your insurance should change with it. Over five or ten years, you might have changed jobs, had children, paid off a large portion of your mortgage, increased your income significantly, or developed new health conditions. If your insurance has not kept pace with these changes, you are likely either underinsured, overinsured, or paying for cover that no longer matches your situation.

Annual reviews are also an opportunity to check whether newer, more competitive products have entered the market. Insurer product ranges and pricing change regularly, and what was the best option three years ago may no longer be the best option today.

How to fix it

Set a calendar reminder to review your insurance at least once a year. Go through your cover amounts, beneficiaries, policy structure, and premiums. If anything has changed in your life, contact your adviser to discuss whether adjustments are needed. An annual review takes 30 minutes and could save you thousands.

9. Over-insuring or Under-insuring

The mistake

Some people take out far more cover than they need, paying high premiums for protection that exceeds their actual financial obligations. Others take out too little, either to save money or because they underestimate how much their family would need.

Why it matters

Over-insuring wastes money. If you have $1 million in life cover but your total financial obligations (mortgage, debts, income replacement, children's education) add up to $500,000, you are paying premiums on $500,000 of unnecessary cover. That money could be better used elsewhere.

Under-insuring is more dangerous. If your life cover is $200,000 but your family would need $800,000 to maintain their standard of living, pay the mortgage, and fund the children's education, the shortfall could force them to sell the family home or significantly reduce their quality of life.

Income protection has a similar issue. If your benefit amount is based on your income from five years ago and you have since received a significant pay rise, you could be receiving far less than you are entitled to if you need to claim.

How to fix it

Use a structured approach to calculate your cover needs. Consider your total debts, your annual income multiplied by the number of years until your youngest child is independent, your partner's earning capacity, and any existing assets or savings. An authorised financial adviser can run a needs analysis that accounts for all of these factors and recommends an appropriate level of cover. Try our life insurance calculator to get a starting estimate.

10. Thinking ACC Covers Everything

The mistake

New Zealand's ACC scheme is world-class for accident cover. But many Kiwis assume it covers all health events, including illness. This is a fundamental misunderstanding that leaves thousands of families exposed.

Why it matters

ACC covers personal injury caused by accidents. It does not cover illness. This means if you are unable to work due to cancer, a heart attack, a stroke, multiple sclerosis, severe depression, or any other non-accident health condition, ACC will not pay you a cent.

Consider the numbers: the most common causes of long-term inability to work in New Zealand are illness-related, not accident-related. Cancer, cardiovascular disease, and mental health conditions account for the majority of long-term disability claims made to private insurers. These are exactly the situations where ACC provides no support.

Without private income protection or health insurance, a serious illness means you are relying on your savings, your partner's income, or government support through the Ministry of Social Development. The Supported Living Payment (as of 2026) is significantly less than most people's regular income and comes with strict eligibility criteria.

How to fix it

Understand the gap between what ACC covers and what it does not. Then fill that gap with private insurance. At a minimum, consider income protection insurance to replace your earnings if illness prevents you from working, and health insurance to cover treatment costs and reduce wait times. Read our full guide on what ACC does not cover to understand exactly where the gaps are.

Not sure if you are making any of these mistakes? Book a free insurance check with QuoteHub. An authorised financial adviser will review your current cover, identify any gaps or issues, and recommend improvements, all at no cost to you.

How to Avoid These Mistakes Going Forward

The common thread running through all ten of these mistakes is a lack of regular, informed review. Insurance is not something you buy once and forget about. It is a financial tool that needs to be maintained, adjusted, and optimised as your life changes.

Here are three practical habits that will help you stay on track:

  1. Schedule an annual review. Set a recurring calendar reminder. Spend 30 minutes each year checking your cover amounts, beneficiaries, waiting periods, and premium structure.
  2. Work with an authorised adviser. A good adviser does not just sell you a policy. They monitor your cover over time, alert you to changes in the market, and help you adjust as your circumstances evolve. Adviser services in New Zealand are typically paid by the insurer, so there is no direct cost to you.
  3. Keep your insurer informed. If your health, occupation, income, or family situation changes, let your insurer or adviser know. Proactive communication prevents problems at claim time.

Frequently Asked Questions

What is the most common insurance mistake in NZ?

The most common mistake is not reviewing insurance regularly. Many Kiwis set up a policy and never look at it again, even after major life changes like having children, buying a house, or changing jobs. This leads to cover that no longer fits their situation, either leaving them underinsured or paying for protection they no longer need.

Can my insurance claim be declined if I did not disclose something?

Yes. Non-disclosure is a leading cause of declined claims in New Zealand. If you fail to disclose a material fact during your application, whether intentionally or by oversight, your insurer may have grounds to reduce or decline your claim, or even void the policy entirely. Always disclose your full medical and lifestyle history when applying.

How often should I review my insurance?

At a minimum, once a year. You should also review your cover after any significant life event, such as getting married, having a baby, buying a home, changing jobs, or receiving a significant pay rise. Regular reviews ensure your cover keeps pace with your life.

Is employer group insurance enough?

For most people, no. Employer group cover is a useful supplement, but it typically ends when you leave the job, offers limited cover amounts, and does not give you control over the policy terms. It is best to hold your own individual policy that stays with you regardless of your employment situation.

Does ACC cover illness in New Zealand?

No. ACC only covers personal injury caused by accidents. It does not cover illness, including cancer, heart disease, stroke, or mental health conditions. If you are unable to work due to an illness, you need private income protection insurance to replace your income. This is one of the biggest gaps in many Kiwis' financial protection.

What happens if I cancel my insurance before the new policy starts?

You will have a gap in cover during which you are completely uninsured. If you are diagnosed with a condition, have an accident, or pass away during this gap, there is no policy to pay out. Always keep your existing policy in force until your new policy has been fully underwritten, accepted, and activated.

Disclaimer: This article is general information only and does not constitute personalised financial advice. Insurance needs vary based on individual circumstances. For advice tailored to your situation, speak with an authorised financial adviser. QuoteHub is operated under FSP 712931.

References

Explore related pages: Life Insurance, Income Protection, Health Insurance, Trauma Insurance.