What happens to your funeral insurance if the insurer fails in New Zealand?

Written by Henry Smith · Reviewed by Smiths Insurance & KiwiSaver, licensed Financial Advice Provider (FSP712931) · Updated 2026-10-20 · Reviewed quarterly, when the underlying data is restated.

Financial advice is provided by Craig Smith Business Services Limited, trading as Smiths Insurance & KiwiSaver, a licensed Financial Advice Provider (FSP712931). QuoteHub is a trading name.

If a licensed life insurer fails in New Zealand, the Reserve Bank of New Zealand can step in under the Insurance (Prudential Supervision) Act 2010, and a liquidator must try to keep the life policies running so they can be moved to another insurer. The Act does not guarantee payment: a court can reduce what policies are worth, and we found no compensation fund in it.

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Funeral cover: Only accidental death is covered for the first 2 years. Total premiums can add up to more than the cover, and it may not meet the whole cost of a funeral.

Life cover: Conditions you already have aren't covered for the first 2 years (premiums refunded instead). Suicide isn't covered for the first 2 years, and a few conditions can be excluded permanently.

Insurer: Momentum Life Limited. Financial strength rating B (Fair) from AM Best, affirmed 11 February 2026; B ratings sit in AM Best's 'vulnerable' range. The rating scale is available for inspection at every Momentum Life office in New Zealand. What this means

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The Insurance (Prudential Supervision) Act 2010 is the law that licenses and supervises insurers in New Zealand. Its stated purposes are to promote "a sound and efficient insurance sector" and "public confidence in the insurance sector" (section 3). It also says plainly what it does not do. Among the principles the Reserve Bank must take into account is "that it is not a purpose of this Act to eliminate all risk of insurer failure" and "that members of the public are responsible for their own decisions relating to insurance" (section 4). In practice that gives a funeral insurance policyholder a set of protections that run in stages, from early warning to court-supervised transfer, but no promise that every policy is paid in full. This page sets out those stages in plain words, what they mean for a small funeral policy, and how to read an insurer's financial strength rating. Our reading is of the Act as at 1 July 2025. We could not open the Reserve Bank's own web pages on 20 October 2026, so this is our reading of the legislation, not a Reserve Bank statement. Total premiums on a funeral policy can also end up larger than the benefit, and the benefit may not cover the whole funeral.

The stages the Act sets out

Stage	What the Act provides	Section
Licensing and a rating	An insurer must be licensed, and must hold a current financial strength rating from a rating agency approved by the Reserve Bank	15, 60
Telling you the rating	Before you take out or renew a policy, the insurer (or the intermediary) must give you its rating, the agency and the rating scale in writing	64
Downgrades	If the rating is lowered, the insurer must give public notice within 10 working days, or write to every New Zealand policyholder within 60 working days	69
Early intervention	The Reserve Bank can require a recovery plan, or give directions, if an insurer is failing or likely to fail to maintain its solvency margin or is not run prudently	138, 143
Liquidation	The Reserve Bank can apply to the High Court to appoint a liquidator, for example when the insurer cannot pay its debts or is failing to maintain a solvency margin	151
Keeping life policies running	In the liquidation of a life insurer, the liquidator must carry on the life policies with a view to transferring them as a going concern, unless the High Court orders otherwise	163
Transfer	The liquidator may apply to the High Court to approve a scheme moving some or all of the business to another insurer; the Reserve Bank and an independent actuary report on it, and an approved scheme binds everyone	164 to 167
Reducing policy values	The High Court can reduce the value of one or more insurance contracts; for an insurer in statutory management, an Order in Council can do the same	152, 161, 191
Statutory management	The Governor-General can place an insurer under statutory management, but only where its failure may significantly damage the financial system or economy, or it may be operating fraudulently or recklessly, and policyholders cannot be adequately protected another way	170 to 173

Two of those rows matter most for a policyholder. The first is section 163: the default is that life policies keep going while a buyer is found. The second is the reduction power: if an insurer cannot meet all its obligations, a court can reduce the value of contracts rather than leaving each claim to be paid in full. A liquidator also works out the amount owed under each policy and must tell each policyholder in writing; that figure is binding unless the policyholder appeals to the High Court within 2 months (section 169).

Who is paid first from a life insurer's assets

A life insurer must keep at least one statutory fund for its life insurance business (section 82), and must give priority to policyholders of the policies in that fund over its shareholders (section 87). Momentum Life's Funeral Insurance wording says the policy sits in Statutory Fund Number 1. If a life insurer is wound up, section 116 sets the order for a fund's assets. The liquidator's fees and expenses, the costs of the person who applied to the court, and some other costs come first. After those costs, the fund's assets go first to the policy liabilities of that fund, then to the other liabilities of that part of the business, and anything left is applied as the High Court directs. If the assets do not cover all the policy liabilities, the court directs how they are shared. A funeral policyholder therefore ranks ahead of the fund's other creditors, but behind the costs of winding up, and a shortfall is shared as the court directs.

Is there a compensation fund?

We searched the full text of the Act (version as at 1 July 2025) and found no provision creating a fund or scheme that pays policyholders' claims when an insurer fails. The protections above are supervisory and court-based. That is our reading of this Act only. Other laws or arrangements may apply to particular products, and you should not assume a government fund will step in. This is one reason ratings and the insurer's own solvency disclosures are worth reading before you buy.

Where the Ombudsman fits

The Insurance & Financial Services Ombudsman Scheme (IFSO) is a free dispute service. Momentum Life's wording says IFSO's independent assessment of a complaint "is binding on Momentum Life". That is about complaints over decisions, such as a declined claim. It is not an insurance fund, and nothing in the wording we read says it pays a policyholder if an insurer cannot.

What a rating tells you

A.M. Best, the agency that rates Momentum Life, describes a Financial Strength Rating as "an independent opinion of an insurer's financial strength and ability to meet its ongoing insurance policy and contract obligations". It is "not a recommendation to purchase, hold or terminate any insurance policy" (A.M. Best: Guide to Best's Financial Strength Ratings). On that scale, B and B- are "Fair", B++ and B+ are "Good", and A and A- are "Excellent". A.M. Best says Fair means "a fair ability to meet their ongoing insurance obligations" and that "financial strength is vulnerable to adverse changes in underwriting and economic conditions". Agencies use different scales, and we found no source that converts one agency's grade to another's, so compare only within the same agency.

Insurer behind the product	Agency	Rating as published
Momentum Life Limited	A.M. Best	B (Fair)
Pinnacle Life (NZ Seniors, OneChoice)	A.M. Best	B+ (Good)
Autosure (Greenwich Life)	A.M. Best	B++ (Good)
Chubb Life Insurance NZ	A.M. Best	A (Excellent)
Asteron Life (AA Life)	Fitch	A+ (Strong), as Asteron publishes it

These are the underwriter's published ratings, retrieved 17 to 20 October 2026. They are not a ranking of which policy to buy. See the full funeral insurance comparison for entry ages, windows and terms.

What this means for Momentum Life policyholders

Momentum Life's A.M. Best rating is B (Fair). It was downgraded from B++ (Good) and A.M. Best affirmed B (Fair) on 11 February 2026. Momentum's own table groups B in a "Vulnerable" range (Momentum Life: Financial strength). In the same release, A.M. Best described operating performance as "marginal" and noted a high level of execution risk (A.M. Best release, 11 February 2026). Momentum's own solvency disclosure shows a ratio of 107% at 30 June 2026, a margin of about $0.6 million, down from 117% a year earlier. None of these figures says Momentum will or will not fail, and we do not draw that conclusion. They are the facts to weigh, next to a product with a small benefit.

If you hold a policy and your insurer is in difficulty

Think before cancelling. Cancelling means you lose the premiums you have paid, and a replacement policy starts its own early-death window, so the cover you have may be worth more than the one you could rebuy. See switching funeral insurance.
Keep paying premiums. Momentum's wording says it will not pay a claim unless premiums due have been paid.
Watch for notices. Downgrade notices must be public or written (section 69), and a liquidator or statutory manager must tell you in writing what your policy is valued at.
Check the rating disclosure. If an insurer did not give you its rating before you entered or renewed the contract, section 66 lets you cancel within 20 working days and recover premiums for the period after cancellation.
Ask for advice. A licensed adviser can compare what other insurers would accept at your age.

Where to get advice

The buttons on this page open Momentum Life's online application, one option among several. QuoteHub is a Momentum Life partner and Smiths Insurance & KiwiSaver may receive a commission if you buy a Momentum policy; see how we are paid. For more on the company, see Momentum Life and the funeral insurance companies list; on guaranteed acceptance generally, see what guaranteed acceptance is. Advice is provided by Craig Smith Business Services Limited, trading as Smiths Insurance & KiwiSaver, a licensed Financial Advice Provider (FSP712931). Back to the funeral insurance hub.