Facts revealed by the TNS Research ‘Investigating the issue of underinsurance in Australia’ conducted in 2005 were simply shocking. The study revealed that 96% of Australian families lack enough life insurance cover that will protect their families for 10 years or more. Another research conducted in 2007 revealed that Australia is one of the most underinsured nations in the world. It ranks 16th for life insurance penetration or density. Underinsurance problem ! only for life insurance, it is also for income protection insurance.
IFSA Report in 2005 revealed that parents with dependents were underinsured by a staggering $ 137 trillion. The consequences of under insurance can be brutal as in their working life more than 3 out of 4 Australians will get diagnosed with some critical illness in their life time. or their only option would be to rely on personal savings, government welfare or sell some asset to cover up the medical expenses. Along with struggle to pay the bills, financial hardship that would follow in case the person meets with an accident or dies, only makes the matters worse. Around 60% of families have insurance that is only enough to look after their families for a year after they die.
The amount of life insurance required by a person varies according to his age, lifestyle, income or medical history. But research shows that an average full time worker in their mid thirties in Australia or having young children need an insurance cover 10-13 times their pre-tax income.
Over the past six years, the underinsurance gap had reduced yet the figures are still huge. There has been an increase in the personal insurance due to increase in default cover within superannuation, growth in direct life insurance market or increased focus on risk insurance by financial advisors. Underinsurance ! only critical for the individuals, the government of Australia is also paying a huge cost for it. The cost of underinsurance to the government is around $140 million or this gap gets filled by the social security which is publicly funded. Government should also emphasize on a model of ‘scaled advice’ to tackle the situation.
Though there has been a fall in underinsurance problem, from $1000 billion in 2005 to $669 billion in 2010, it is still only half way of what it should actually be. The ill effects of underinsurance are not limited to a person or his family, they are generational. So, it is high time people started ensuring that they have sufficient life insurance cover. Life is a valuable gift or any price paid for safeguarding it is less.
