The following blog post is sourced from Lakeside’s Financial Knowledge Centre.
Did you know 83% of Australians say they have insurance for their car , yet only 31% insure their income? . This is an interesting statistic considering that without an income most of us wouldn’t be able to run a car, let alone meet the finance costs on it. What this does highlight though is the relative misunderstanding of the importance of personal risk insurance and the risk that underinsurance creates for everyday Australians.
According to the LifeWise/ NATSEM underinsurance report released in February 2010, over one million working age parents will die or become seriously injured and be unable to work at some stage during their career. This means that every day, over 65 families are impacted by an event that seriously affects their ability to earn an income and provide for their family.
Yet, only 4% of Australian families have adequate levels of insurance, meaning that Australian families are underinsured by more than $1.37 trillion . This level of underinsurance makes Australia one of the most underinsured nations in the developed world.
Rice Warner Actuaries estimate that this underinsurance will cost Australian taxpayers in excess of $250 million each year through increased Government social security payments. However the true financial burden on the Government may be understated as individuals who face financial hardship need to use savings and sell assets to meet income needs, giving them little chance to prepare for their retirement and little retirement savings to provide for their future income needs.
The Australian “she’ll be right” attitude is evident in the results of a survey conducted in December 2008 , which sought the opinions of Australians aged 25 to 65. This survey found that 89% of people thought they were not likely to have an accident (making them unable to work) in the next 20 years. It also found that 80% of people thought that they were not likely to suffer a serious illness in the next 20 years and 83% of people did not expect to pass away in the next 20 years.
While optimism can be a healthy and wonderful mindset, this “it won’t happen to me” mentality needs to be managed with a consideration for the reality that accidents do happen and many people will experience a career stalling illness.
Insurance payout figures are staggering. A total of $4.4 billion ($17.6 million dollars every day) in Life, Total & Permanent Disability, Trauma and Income Protection claims were made on retail insurance policies in 2012. The total insurance claims in Australia were much more than this as this figure doesn’t include the additional insurance claims paid out from superannuation funds’ group insurance policies.
Having some form of insurance is necessary but it is also important to have the right level of insurance for your personal situation to ensure you and your family are properly protected. Levels of required insurance cover can be calculated a number of ways but the most comprehensive calculation is determined by a needs analysis, which considers your full personal and financial position.
Asking yourself questions like “What would happen to my family if I died?”, “could we afford to keep our current lifestyle if I couldn’t work?”, and “what would happen to me if I suffered a long-term illness” are simple ways to know whether you are underinsured. Seeking advice from your professional adviser can check whether you’re appropriately protected or not in the event of the unexpected occuring.
Insurance cannot prevent accident, illness or death from happening but it can protect you and your family’s quality of life in the event that they do happen.
This blog post has been sourced from Lakeside’s Financial Knowledge Centre. Click here to see more from the Financial Knowledge Centre.
i Shopping for Car Insurance Fact Sheet AAMI 2008
ii IFSA/TNS Investigating Income Protection Insurance in Australia July 2006
iii IFSA Research conducted in 2005
iv Swiss Re Economic Research and Consulting Underinsurance Report
v OnePath Life Research Optimistic Australians Report