Does Australia have an 'underinsurance' problem?
Family means the world to us. So why is life insurance so low down on our to-do list?
Do either of these situations sound familiar? To save a little cash each month, you’ve opted for an insurance policy with less coverage for a lower premium. Or, you’re in good shape, and you’re super busy, so life insurance is currently sitting way down the bottom of your to-do list. If this sounds like you, you’re certainly not alone.
As a country, we’re underinsured. A 2017 report from Rice Warner sheds light on the extent of our working population’s underinsurance gap:
- Whilst the majority of working Australians do hold some life insurance, it’s the level of cover (with regard to the amount insured) that is often falling short of what would be considered adequate protection.
- Similarly, the median level of coverage for Total Permanent Disability (TPD) is viewed as an insufficient income replacement for many Australians.
- Perhaps most alarmingly, only one third have income protection insurance.
Do you know how you’re covered? Chances are that you are one of these underinsured Aussies. It’s definitely worth investigating how you and your family would be supported if the worst were to happen.
Why are we underinsured?
‘Underinsurance’ occurs when you have insurance, but it’s not quite right or enough cover for your personal circumstances, or you don’t have insurance at all.
In their report, Rice Warner point to a general lack of awareness about life insurance which may be behind this issue. There are also some common misconceptions about life insurance, which contribute to underinsurance in Australia. These include:
- It’s too expensive. Not being able to afford life insurance is a common excuse, but you may be surprised at how affordable it can be. If you have led a healthy lifestyle to date and meet the eligibility criteria, you may find that policies that set the premium based on your circumstances and health factors (known as underwritten policies), like those offered through Medibank Life Insurance, offer cheaper rates for cover rather than non-underwritten policies.
- I don’t need it. While it’s easy to feel invincible when you’re fit and healthy, we never know what life is going to throw at us down the track. Life insurance is really about managing risk to you and your family. So you should consider what the financial consequences would be for your family if you were to pass away. Things to consider are whether you have significant debts or ongoing lifestyle costs that would be hard to meet if the main breadwinner wasn’t there.
- I’m covered by my Super. While the life insurance cover that is included in your Super has improved in recent years, what you might find is that level of cover provided may still not cut the mustard for many families. When you consider the cost of raising a child and the average home loan amount, the payout offered by the life insurance in your Super is likely to be significantly less than adequate to cover these ongoing costs.
Getting the appropriate level of life cover to suit your situation will provide a range of benefits for your partner and family if the need arose. From a lump-sum payout to help with mortgage repayments, to help keep up with bills or help maintain your lifestyle, life insurance helps protect what’s important to you.
How do I Cover my Family?
Asking yourself the question “do I need life insurance?”, or reviewing your current level of cover, is the first step in preparing for the unexpected, and protecting the people you care about. Although it can be an uncomfortable topic to think about, accepting that life is unpredictable will help equip us for life’s curveballs.
If you already have insurance, how can you be sure that you and your family are adequately covered?
- Read the fine print. Take the time to read through your product disclosure statements and policy schedule, so you can understand exactly what your insurance does and doesn’t cover, and for how much. If you don’t understand something, give your insurer a call to clarify.
- Revisit your finances. Have a look at your current finances and chat to your accountant if you have one. If you’re fortunate enough to have savings put aside for emergencies, figure out how long they’d last.
- Update your policy. Chat to your insurer to update your policy to the right level of cover for you. And any time your family’s circumstances change or there’s a new addition, get back in touch to make sure your policy still provides enough cover.
And if you’re a Medibank member, you’ll get a 10% discount on your premiums for your Medibank Life Insurance policy.
Important things you should know: The information contained on this page is of a general nature only and has been provided without taking into account your specific objectives, financial situation or needs. You should consider the appropriateness of the information in light of your particular needs and circumstances. You should consider the Product Disclosure Statement for full Terms & Conditions (available at medibank.com.au/life). Medibank life insurance products are issued by the insurer, Swiss Re Life & Health Australia Limited ABN 74 000 218 306; Australian Financial Services Licence No. (AFSL) 324908, Level 36, Tower Two, International Towers Sydney, 200 Barangaroo Avenue, Sydney NSW 2000. Medibank life insurance products are distributed by Greenstone Financial Services Pty Ltd (GFS) ABN 53 128 692 884; AFSL 343079, 58 Norwest Boulevard, Bella Vista NSW 2153 and promoted by its Authorised Representative Medibank Private Limited ABN 47 080 890 259; Authorised Representative No. 286089, 720 Bourke Street, Docklands VIC 3008. Medibank Private Limited is also authorised by GFS to distribute Medibank Starter Life Insurance.