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Blog | Under Insurance in Australia

Kathleen Dean
Associate Adviser
27 Oct 2021

The purpose of life insurance is to financially protect individuals and their families from unexpected and catastrophic events. A white paper released last year explores and details the statistics around the very real issue of underinsurance in Australia. Here is a summary of what it unearthed.

If the primary income earner in your household suddenly passed away or became unable to work, how would you or your family cope financially? Having life insurance may prevent your household from falling into financial hardship.

A whitepaper titled ‘Challenges confronting the Australian life insurance market’ was released in July 2020 by the Choice and Access to Life Insurance (CALI) campaign. This examined the Australian life insurance market and the challenges facing it compared to the top four ‘leading’ life insurance markets in Japan, Canada, the United States, and Germany.

The research found that Australians tend to underestimate their own risk exposure and needs. According to community expectations, Australians believe that adequate protection from life insurance would cover the following:

  • Pay off the whole mortgage
  • Provide for children’s future education costs
  • Meet the family’s living costs
  • Put the beneficiaries of the policy in a position to be independent in the future

But many ordinary Australians don’t have enough life insurance – if they have any at all.

Unfortunately, 21% (or one in five) of Australians aged 25-35 have less life insurance than the community standard to provide for their families, and significantly less if they also have a mortgage. Middle-aged Australians (aged 35-44) face a similar dilemma, with 20% also having less life insurance than community expectations. For both age groups, it was found that the group life insurance cover provided through their superannuation accounts wasn’t enough to pay off their liabilities and provide for their dependents. Australia has a much lower proportion of debt covered through life insurance compared to Japan, Canada, the United States, and Germany.

Research also found that one in two Australians don’t have any Income Protection insurance. What would you do if you couldn’t work due to illness or injury, and you had exhausted all your sick leave? If you had Income Protection insurance, this would help to bridge this gap.

Rice Warner has also been researching underinsurance since 2005. In their 2020 report, they defined a basic level of insurance cover as meaning the amount to extinguish all non-mortgage debt and sustain current living standards until age 65 or until children reach age 21. Using this benchmark, they found that generally the existing insurance Australians hold covers 92% of their basic needs if they were to pass away, but only 29% of their needs if they were to become disabled and no longer able to work. Rice Warner estimated that this translates to over $600 million per annum in social security payments to try and make ends meet.

Australians who have obtained life insurance through an adviser on average have more than double the amount of cover than an individual who has not received advice, so speaking with a qualified Financial Adviser is important to determine if you and your family would be adequately insured if the worst were to happen.

If you have any questions regarding personal insurance, please do not hesitate to contact the Risk & Insurance team at Hewison Private Wealth for an initial discovery call to assess your personal circumstances.

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.