Is Australia suffering from an underinsurance problem?
Published 06 Jun 2017
Insurance can provide crucial financial support for you and your family should unforeseen circumstances strike. Whether it’s cover for your car, your home or even your life, having comprehensive insurance can help prevent a bad situation from becoming worse.
However, recent research has suggested that many Australians may be underinsured, which means they don’t have enough cover to meet their needs. This insurance gap can be costly when you or your loved ones become seriously ill, suffer an injury or die.
The Real Insurance Family Protection survey, published in May, found that 86 per cent of parents believed life cover was important, with nine in 10 of those claiming it provided peace of mind.
One-third of parents don’t believe they have sufficient insurance for their requirements, which is unfortunately reflected in other similar studies in this area.
Underinsurance gap “critical and relentless”
Rice Warner research from 2015 showed that the median level of life insurance cover only met 61 per cent of basic needs.
This refers to the minimum amount of money required on average to pay debts (excluding mortgages) and maintain current living standards until aged 65 or children reach 21.
Underinsurance is particularly prevalent for total and permanent disability (TPD) products, which only meet 13 per cent of needs. Meanwhile, income protection policyholders can expect just 16 per cent of what they require.
Geoff McRae, a senior consultant with Rice Warner, told the Sydney Morning Herald that many families focus on their immediate needs rather than considering the long-term consequences of life insurance and superannuation.
“There’s no doubt people are more aware of needing insurance for their car or their house than they are for themselves,” he explained.
“And with everyone under 35 thinking they’re indestructible anyway, they often feel they don’t need any insurance.”
Default cover under super
Many people have default life insurance through their superannuation fund, including TPD and critical illness cover.
However, Rice Warner noted that super funds only meet approximately half the basic death cover needs for households without children and even less for those with them.
There is also the chance that an insurer or super fund may reject a claim if they feel the policyholder has not met eligibility criteria. Nevertheless, there are legal avenues to pursue that could help you obtain the payouts that you may deserve.
If you believe you are eligible for benefits through your superannuation fund, please contact Gerard Malouf & Partners Superannuation Lawyers.