None of us would ride in a boat that did not have enough life jackets
Despite this, Australia is one of the most under insured nations in the developed world.
More than three in four Australians will be diagnosed with a serious illness in their working life. This is why personal insurance is vital.
Research has consistently shown Australians don’t take out adequate levels of insurance to protect themselves and their family. Research commissioned by the Investment & Financial Services Association in 2005 showed parents with dependents were critically under insured by $1.37 trillion, and that only 4% of the total population with dependent children have adequate levels of life insurance cover. That statistic is expected to be even worse today.
There are a number of reasons why Australians are under insured. Take a look at the four main reasons and see if you have fallen victim to any of the common mistakes.
The key reason many Australians are under insured is because they do not realise that their personal insurance should to be tailored to suit them, and regularly reviewed to make sure cover is adequate. Not only will this save them money, but it will also accommodate their unique circumstances such as multiple income streams, family situations, health record and occupations.
Another reason many Australians are unknowingly uninsured, is the incorrect assumption that there is enough personal insurance within superannuation. Rice Warner Actuaries estimate that life insurance cover within superannuation is on average only 20% of what is needed. There are many reasons why personal insurance and superannuation shouldn’t be put together. For example, insurance is an expense while superannuation is an investment.
There are many different kinds of personal insurance and not all will suit you or provide adequate cover. Understanding the differences in personal insurance policies can be like reading a new language for the first time.
A common trap is the definitions of terms used in the fine print, such as ‘own occupation’ and ‘any occupation’. For example, if a surgeon is insured under ‘own occupation’, they will be paid if a hand is lost in an accident leaving them unable to do surgical work. However, if the surgeon is insured under ‘any occupation’ and can still work as a GP, only a partial claim will be paid.
It is wise to talk to a specialist personal insurance broker who can assess your situation, calculate the level of protection you need, understand the fine print and translate your options to provide you the most affordable and tailored solution. Personal insurance brokers are independent and free to the consumer. For example, a good broker will know that some types of Needle-stick Cover for the medical industry only include HIV and do not cover Hepatitis B and C.
It is often in the ‘calculation’ phase that people under insure themselves because it is easy to forget and underestimate the burden that personal insurance needs to carry. For example, it costs around $450,000 for the average Australian family to raise two children from birth to age 20. That does not include a home loan (on average $216,500) and an average of $14,500 in other debts.
The Australian Bureau of Statistics reports that 4,400 parents die every year and leave dependent children behind. Many of those parents never thought they would die before the children were grown, and were therefore under insured.
Don’t leave yourself, your family and your business exposed
Australians who do not have adequate and tailored personal insurance are exposed to greater risks.
I like to think of personal insurance as an umbrella. An umbrella can’t stop the rain from falling, but it certainly can protect you in a storm. In the same way, personal insurance cannot prevent life’s storms from happening, but if it is set up correctly it will make sure you and your family can survive if you can no longer work. It also means that you do not need to sell your business to cover living costs.
by Rick Mapperson, founder and managing director | Rick Mapperson and Associates
 Swiss Re Economic Research & Consulting , 2007