1 in 3 Australians don’t buy adequate cover. Why?

Last updated on November 25th, 2021 at 02:54 pm by Bill Tsouvalas

For most of us, buying life insurance might be a fairly straightforward process. However, for many who want to make sure they get the right coverage, it can be little tricky and time consuming.

According to LifeWise, an initiative of the Financial Services Council of Australia, says one in three Australians don’t understand life insurance and this stops them from buying an adequate cover.

41% say that life insurance is too complicated. 1 in 4 wouldn’t know where to start and 1 in 5 say they don’t know how much coverage they need, so they don’t ever make a choice. Underinsurance is a real problem in Australia; but it doesn’t have to be your problem.

A lack of practical advice stops many Australians from finding the right level of life cover. 81% say life insurance is too expensive, but 61% overestimate costs.

Savvy’s CEO Bill Tsouvalas believes “education about the relatively low costs of life insurance is what’s needed. Families need to know that life insurance is as vital as insuring one’s car, home or business. There are some guides to life insurance online, but there is no one-size-fits-all solution. Financial advisors are here to help people get a level of coverage that’s right for them.”

“It’ll never happen to me”

OnePath Life Research released an “optimistic Australians” report in December 2008. It showed a whopping 89% of respondents didn’t think they’d ever experience a life-changing accident that would prevent them working in the next 20 years. 80% said they would never suffer a serious illness and 83% did not expect to pass away in the next 20 years. Even so, here are the facts:

  • Over 1,600 people die on our roads each year, and they’re people between the ages of 26 and 59.
  • One third of women and one quarter of men will suffer cancer at some stage in their life
  • Half of those will live for five years after diagnosis
  • Over 50,000 people were hospitalised due to road accidents, staying over 5 days in hospital.

“I already have insurance”

Rice Warner Actuaries estimate that Australian families’ life and income are underinsured to the tune of $1.37 trillion dollars. Not billion, TRILLION, with a T!

“Many people think that their life insurance through their super is all they need,” Tsouvalas says. “In reality it’s likely only 20% of what you require. Some of the advice from super funds is mailed out in a big thick booklet, and bank based super funds might have tellers talk you through one-page ‘info’ sheets. It isn’t the right kind of information for people who just want to make a good choice.”

“A financial advisor not only explains policies, they can help run the numbers – they determine what level of coverage you need and what happens to you financially if an unfortunate event occurs. That way you can cover any shortfalls well in advance.”

“It’s too expensive”

83% of Australians insure their cars, yet only 31% of us insure their income. Why are we so optimistic about our ability to work, but not about our cars?

Further, the average household debt in Australia is $128,000. The average earnings ratio is $6.60 saved for each $100 earned. Its unlikely most Australians prepare themselves for an “unthinkable event” that will prevent them from earning an income.

“Financial products can be confusing, but that’s where the help of a financial advisor or planner comes in,” Tsouvalas says. “You can buy your car insurance online – we encourage it – but for complex insurance products like this, it’s best that you talk to a financial professional. “Professionals work with you to tailor solutions from the ground up, so you pay the right amount for your coverage. Just like a consultation with a solicitor or a doctor, financial advisors work with you in the same regard, explaining everything for you so you make the right decision. It’s the right choice to protect yourself or your family.”