Most people wouldn’t decide to insure half the value of their car, so why do most Australians only have half the life insurance cover they need?
There are a number of reasons – people think they already have enough, they believe they don’t need insurance or they think that it’s too expensive. These reasons and more are myths.
Let’s debunk those myths and face the facts, because it’s important for you and your family that you base your future on facts not myths.
Myth 1. I have enough insurance inside my super.
Unlikely. Remember the minimum level of cover provided via your super fund is set with all members in mind it is therefore unlikely to be exactly the level of cover you and your family need and may not be enough to cover all or even just come of your debts. Make sure you contact your super fund to find out your level of cover.
Myth 2. I don’t need insurance, the Government will look after me if I get sick or injured.
This would be nice but it’s not really the case. Centrelink will pay a maximum disability pension of $569.80 per fortnight for singles and $475.90 (each) for couples1. Would this cover your current lifestyle?
Myth 3. Workers’ compensation will cover me.
Not usually. Workers’ compensation only covers accidents or injuries that occur during working hours or for an illness that’s the direct result of your employment. The majority of accidents and illnesses occur outside of the workplace. So if you want to protect your lifestyle and your family it’s unwise to rely on workers’ compensation alone.
Myth 4. Life insurance is not affordable.
For most Australians insurance is very affordable. For example, a 35 year old male, non-smoker applying for $500,000 of Life Insurance cover the monthly premium would be approximately $30. A 35 year old female, non-smoker applying for $500,000 of Life Insurance cover the monthly premium would be approximately $25.
That’s peace of mind for less than the cost of a coffee a day. If you have some existing cover, increasing this to adequate levels may cost you even less than that coffee.
You may find a budget planner a useful tool to help you see how you could free up the spare cash to ensure you have the right level of cover.
Myth 5. Life insurance companies do not pay claims.
Insurers do pay claims. In fact life insurance companies pay out almost $10 million every working day in claims to customers2. This figure would be even higher if the Australians had adequate levels of cover.
Myth 6. Many people have to pay higher premiums or cannot get life insurance at all.
Insurers are in the business of giving people access to insurance at an affordable price. If they failed to do this, they wouldn’t have a business. Data from the Investment and Financial Services Association (IFSA) indicates that around 93% of applicants pay standard premiums for their life insurance3. People who have a higher risk of developing chronic illness or who work in high risk occupations are usually required to pay an extra premium to cover this risk - but this only applies to a few people (the remaining 7% of applicants). And only a very small number are not able to be covered at all.
Myth 7. Most people have enough insurance.
Unfortunately, this is not the case. In fact, research shows that 60% of families with dependent children do not have enough insurance to cover the household expenses for a year if the family bread winner were to die4. We also know that on average those that have death cover through their super policy have less than half the level of cover they need5.
Ironically, most Australians insure their homes and cars but less than a third insure their most valuable asset – their income. This causes unnecessary hardship for numerous Australians.
1 Centrelink website. Rates are a guide only and are effective from 20th March 2009.
2 IFSA analysis based on APRA data and Risk Store data 2007
3 IFSA, industry underwriting analysis 2007
4 IFSA/TNS Protection Gap research 2005
5 IFF/AIST Research, 2008