Under-informed = Under-insured

Large numbers of Australians could find themselves struggling not only with emotional distress, but also with the financial challenges associated with the major life events, according to a recent report.

The survey warns of Australia’s ‘income protection gap’, referring to the mismatch between an individual’s need for income protection and their actual cover [1]. While nearly 50% of Australians have experienced income loss due to serious illness during their professional life, just over a quarter are insured against trauma, illness or disability [1]. This is despite the fact that almost one third of survey respondents said they have less than one month’s savings to use in such an event [1].

The survey, conducted by Zurich in partnership with Oxford University, also reveals that Australians have poor financial literacy on insurance in general, with only 19% of respondents reporting a ‘good to very good knowledge’ of disability insurance [1].

Two phenomena arise from this: ‘misinsurance’ describes having the wrong type of insurance while ‘under-insurance’ refers to having the appropriate type but insufficient cover. The consequences of having inadequate and/or inappropriate insurance can be very serious and may include policyholders not being paid their full entitlement at claim time, despite having fully paid their premiums.

An earlier Whitepaper by Zurich Insurance [2] sought to understand Australians’ understanding of their life insurance cover, including any that may be available within their super. The findings indicated that Australians generally don’t know the extent of cover in their super and, therefore, whether or not it suits their circumstances and risk priorities. A significant proportion of respondents incorrectly believed their super fund life insurance covered them for trauma and other conditions. It doesn’t.

The Whitepaper also identifies a significant misalignment between an individual’s financial situation and their stated risk prioritisation. 58% of those surveyed indicated that if they were unable to work because of illness or injury, they could survive for no longer than three months before needing to sell assets. However, despite their stated reliance on income, when asked which of the risks to their financial health they were most concerned about, only 10% said they were worried about losing their income. This is obviously a cause for concern.

When it comes to personal risk insurance, there is no substitute for professional advice that is specific to your circumstances. Implementing personal risk insurance is complex and requires careful consideration of the level of cover that is appropriate; the premiums and payment structure; whether the policy represents good value for the benefits that are included; and whether the insurance company has a good reputation for using clear and useful definitions and when it comes to paying the policyholder’s entitlement in full in the event of a claim. A professional will also be able to assist with managing the process of claiming for your full entitlements during an emotionally difficult time.

For help to implement a strategy for your personal risk insurances, or to review your existing personal insurance arrangements, please contact me by calling (02) 8115 9262 or emailing Tony Bates at tony@adx.com.au.

Tony Bates is a Financial Advisor for ADX Wealth and licensed under AFSL 500640.

The information (including taxation) contained within this document is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. ADX Accountants and ADX Wealth strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances.

1. Report: Income Protection Gaps: a rising global challenge. Accessed 19 July 2017 at https://www.zurich.com/_/media/dbe/corporate/docs/whitepapers/risk-nexus-income-protection-gaps-november-2015.pdf?la=en&hash=5D2FD49812E4579F145820B852C869C7C4301AF8

2. Zurich Insurance, Research Whitepaper, February 2014, ‘Australians and life insurance: misinformed, misinsured?’ Accessed 19 July 2017 at http://www.zurich.com.au/content/dam/australia/life_insurance/zurich-australia-whitepaper_australians-and-life-insurance_misinformed-misinsured.pdf