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Are You and Your Family Protected?

Life insurance is more important and more accessible than you might think.

While most Australians insure assets such as their home or car, when it comes to their most valuable assets – their life and their ability to earn an income, Australians are one of the most underinsured people in the developed world[1].


Research conducted by Rice Warner Actuaries for the report “Underinsurance in Australia 2015” showed that the median level of life cover for Australians only meets 61% of their basic needs (the minimum amount needed to pay all non-mortgage debt and sustain the current living standard until age 65, or until children reach age 21) and only 37% of their income replacement needs (the minimum amount needed to replace the expected net income of the insured, and maintain current living standards until the insured would have reached 65). This is even though more than 90% of Australians between 15 and 65 have life cover through their superannuation fund.

The report found that the average sum insured for an Australian as at 30 June 2015 was only $287,022. However the average insurance needs for young parents aged 30 was approximately $700,000 just to provide basic cover, or $1,140,000 to provide an income replacement cover for up to 10 years.


What this means is that in the event of an accident or illness leading to death or permanent disablement, many Australian families would not receive a large enough payout to cover even a year’s income. Imagine how difficult it would be for these families to deal with this unexpected financial pressure at an already emotionally challenging time?


With so many families having nowhere near the level of cover required, it is not surprising that the underinsurance problem is of growing concern. When considering Australia as a whole, it is estimated that the underinsurance gap is in the order of $1,833 billion.

Minimum insurance needs

It is important for families to take steps to protect themselves financially. With increasing levels of mortgage debt, one-third of Australian borrowers don’t have a repayment buffer, or are less than one month ahead on their home loan repayments.[2] Australia is now also reported to have some of the highest personal debt levels in the world[3] which means that it is critical for all Australians to protect themselves in the unfortunate event of an accident or illness.

Families with dependent children are likely to be the most significantly impacted when considering the financial consequences of the death or permanent disablement of an individual. According to Rice Warner Actuaries, these are basic requirements for an Australian family:

Minimum insurance needs per partner – different family structures

Family type Basic life cover Income replacement life cover

Singles $41,000 $41,000

Single Parents $445,000 $445,000

Couples without children $264,000 $479,000

Couples with children $514,000 $842,000

Life insurance is more affordable than you might think

While 81% of Australians think life insurance is too expensive, 61% overestimate the cost.[4] But as you can see through the examples below, compared to other things that we spend our money on*, life insurance is not that expensive at all.

  • $0.71 per day would be the approximate premium for a 35 yr old female, non-smoker applying for $500,000 of Life cover[5]

  • $0.88 per day would be the approximate premium for a 35 yr old male, non-smoker applying for $500,000 of Life cover[6]

  • $2 per day ($700 a year) is the average amount of credit card interest Australians are paying if their interest rate is between 15-20%[7]

  • $2.96 per day ($90 a month) is the average amount Australians pay for building insurance[8]

  • $3 per day ($106 a month) is the average amount Australians pay for car insurance[9]

  • $3.54 is the Australian national average price for a cup of coffee[10]. There are roughly 240 working days a year. If you were to buy just one cup of coffee every day that adds up to $849.60 per year ($70.80 a month)

  • $4.57 a day ($32 a week) is the average amount Australians spend eating out in restaurants[11]

  • $8.40 per day is the average amount spent on alcohol. (average of 2.1 standard alcoholic drinks).[12] Drink prices vary significantly according to location, but assuming even $4 per drink, (to account for bottle shop and bar price variation) the average Australian could spend $3,066 per year on alcohol

*Figures are an estimate only based on research provided

But life insurance companies don’t pay claims - right?

We only recently had a claim paid of $200,000 on a Critical Illness Claim!

Unfortunately many Australians still believe that life insurance companies never pay out claims when you need them[13]. This is a common myth, but by working with your financial adviser to ensure you take out the

right cover and file any claims correctly, you will be paid for all eligible claims. Just check out some of these AIA Australia statistics[14].

  • An average of over $2 million in Death claims was paid every working day during 2016

  • 17.9% of these claims were made by people under the age of 35 years, 27.3% were made by claimants between 45 and 55

  • 38% of Death claims in 2016 were for cancer (e.g. neoplasms)

  • An average of over $1 million in Income Protection (IP) claims was paid every working day during 2016

  • 38.4% of these were paid to people between 45-55

  • An average of over $1.2 million in Total Permanent Disability (TPD) claims was paid every working day in 2016

  • 30.3% of TPD claims paid in 2016 were for diseases of the musculoskeletal system such as osteoarthritis and bone fractures

As Ben Franklin once said, “in this world nothing can be said to be certain, except death and taxes”. While no one knows when we will die - it could be today, tomorrow, or 50+ years into the future, it will happen. Life insurance protects you and those you love who are left behind, helping them through an otherwise extremely difficult time, and is a crucial and fundamental part of a sound financial plan.

For more information and to determine the best solution for your and your family’s insurance needs contact Stu our Principal Adviser..

  1. http://www.lifewise.org.au/facts-research

  2. http://www.abc.net.au/news/2017-04-13/reserve-bank-financial-stability-review-april-2017/8442242

  3. https://www.finder.com.au/australias-personal-debt-reported-as-highest-in-the-world

  4. http://www.lifewise.org.au/facts-research

  5. AIA Australia, Priority Protection product, effective 25 August 2017, Stepped, AAA Occupation, Non-smoker, Victoria, Yearly premium, No AIA Vitality, includes policy fee and initial selection discount[1] AIA Australia, Priority Protection product, effective 25 August 2017, Stepped, AAA Occupation, Non-smoker, Victoria, No AIA Vitality, Yearly premium, includes policy fee and initial selection discount

  6. https://www.moneysmart.gov.au/borrowing-and-credit/credit-cards/credit-card-debt-clock as at 2 Aug 2017

  7. https://www.canstar.com.au/home-insurance/home-and-contents-insurance/a-beginners-guide-to-home-and-contents-insurance/

  8. https://www.canstar.com.au/car-insurance/what-does-car-insurance-cost/

  9. http://www.goodfood.com.au/it-pro/melbournes-coffee-prices-fastest-growing-in-the-country-20140424-zqytk

  10. https://www.moneysmart.gov.au/managing-your-money/budgeting/spending/australian-spending-habits

  11. http://www.abs.gov.au/ausstats/abs@.nsf/mf/4307.0.55.001/

  12. https://www.finder.com.au/underinsurance-in-australia

  13. http://www.aia.com.au/en/adviser/partner-with-us/claims-philosophy.html

Disclaimer

This information is current as at 08/11/17.

This article has been prepared by Heart1Stop, a social media brand owned by Heart Mortgage Services and Heart Financial Advisers. The information contained in this article is an overview or summary only and it should not be considered a comprehensive statement on any matter nor relied upon as such. The views expressed here are not those of Heart1stop, Heart Mortgage Services, Heart Financial Advisers, shareholders, directors or staff and associated contractors and business associates. This article has been prepared without taking into account any person’s objectives, financial situation or needs. Because of this, you should, before acting on any information contained in this article, consider its appropriateness, having regard to your objectives, financial situation or needs. Any taxation information contained in this article is a general statement and should only be used as a guide. It does not constitute taxation advice and is based on current laws and their interpretation. Each individual’s situation may differ, and you should seek independent professional taxation advice on any taxation matters. While the information contained in this article may contain or be based on information obtained from sources believed to be reliable, it may not have been independently verified. Where information contained in this publication contains material provided directly by third parties it is given in good faith and has been derived from sources believed to be accurate at its issue date. It is not the intention of Heart1Stop or Heart Mortgage Services and Heart Financial Advisers that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. To the maximum extent permitted by law: no guarantee, representation or warranty is given that any information or advice in this publication is complete, accurate, up to date or fit for any purpose; and no party of Heart1Stop or associated entities as mentioned is in any way liable to you (including for negligence) in respect of any reliance upon such information. This article may also contain links to websites operated by third parties ("Third Parties") who are not related to Heart1Stop. These links are provided for convenience only and do not represent any endorsement or approval by us.

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