I came across some interesting research this week regarding the level of insurance the average Australian holds.
New life insurance claims figures released by the Investment and Financial Services Association (IFSA) show Australian families received an average payout of just $91,000 on the death of a partner in 2008. A fact that sheds light on the consequences of the life insurance protection gap.
The release of the claims data coincides with the launch of a major industry initiative aimed at tackling underinsurance. IFSA surveyed its life insurance members to understand claims payout levels across the industry. Based on information from over 90% of the market, the survey found over $2.3 billion1 in claims were paid in the 2008 calendar year on nearly 35,000 policies.
Commenting on the figures, IFSA’s deputy CEO John O’Shaughnessy said “The average size of claims paid shows Australians continue to be underinsured, adding further pressure to working families already strained due to the financial crisis and economic recession.
”More than 13,000 families received an average payout of $91,000 on the death of a partner, usually the primary breadwinner. Given the average family with young children has debts totalling $167,0002, these levels of cover will not protect the majority of Australians from financial difficulty following this type of tragedy.”
Average payouts for total and permanent disablement during 2008 tell a similar story with nearly $71,000 paid out on average to Australians who are disabled and unable to work again.
Mr O’Shaughnessy continued: “When you consider the fact that with many disabilities you can never work or earn an income again, not to mention the care and home modification costs and ongoing living expenses, these levels of coverage are simply not sufficient.
”The average payouts for trauma insurance are less concerning. It’s pleasing to see a higher average payout of around $155,000 for trauma, which is paid on diagnosis of a critical illness, indicating more appropriate levels of cover for this category. However past research shows less than 10 per cent of Australians take up trauma insurance3.”
A gender breakdown of the findings shows that while women are less likely to have life insurance cover, those that do tend to have more adequate levels of cover.
Almost 70% of all claims relate to men; however only 60% of the value of claims paid is to men.
The launch of Lifewise
These latest statistics support many earlier research studies which have consistently shown Australians to be significantly underinsured. International research from reinsurer Swiss Re in 2007 demonstrated that Australia is one of the most underinsured nations in the developed world – ranking 16th for life insurance density and penetration4.
Underinsurance is the target of the Lifewise campaign which was launched by IFSA and Australia’s life insurance industry at a special event in Sydney on 1st May 2009.
Lifewise is an industry wide campaign that aims to encourage Australians to take appropriate steps to protect themselves from the financial hardship that can result from accident, sickness or death.
Mr O’Shaughnessy said “Most Australians have some level of cover in their superannuation fund, however research shows that default levels for most people will not provide an adequate level of financial security should the unexpected happen.
”Through Lifewise we hope that Australians will become more actively engaged in their life insurance decisions and the tools available to people on the website will help them do just that.”
More information about the campaign is available at www.lifewise.org.au.
1 Figures represent claims paid during the period from 1 January 2008 to 31 December 2008 across 13 life insurance companies representing 90% of the life insurance industry by premium and lives insured.
2 For Australian families with children under the age of five, the median amount of debt is $167,000. ABS, AustralianSocial Trends, Household Debt, cat. no. 4102.0, 2009
3 IFSA TNS Research Investigating the issue of underinsurance in Australia, 2005
4 Swiss Re Economic Research & Consulting , 2007
Impact Financial Coaching is a financial planning business in Adelaide, South Australia.
Important information
This article contains financial product advice of a general nature only and is not intended to constitute personal advice. It does not take into account your particular investment objectives, financial situation or needs. While every effort has been made to ensure the accuracy of the information, it is not guaranteed. You should obtain professional advice before acting on the information contained in the publication.
Financial Wisdom Advisers are Authorised Representatives of Financial Wisdom Limited ABN 70 006 646 108, AFSL 231138, a wholly owned but non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124.
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