False reality about financial protection

Survey findings from Australia’s largest life insurer TAL show the majority of Australians either admit they do not have adequate financial protection or simply don’t know if they have enough.

Conversely, 45% of people say they do have enough life insurance cover if they or their partner could not work again.

TAL believes Australians may be falling victim to false confidence about the adequacy of their life insurance given the nation’s well-documented huge underinsurance gap.

TAL Group CEO Jim Minto said: “I am surprised nearly half of the respondents felt they had enough cover because a lot of actuarial research shows they actually don’t. In our experience, a number of common misapprehensions can give rise to a false sense of security."

"First, there is the mistaken belief that life insurance is a single, one-size-fits-all solution. It isn’t because every person’s and family’s circumstances are different, and different types of life insurance serve different purposes."

"Second, there is a belief that life insurance in superannuation automatically provides sufficient protection alone. Insurance through super has been fantastic for millions of Australians but unfortunately most people just retain the low, default level cover without assessing their personal needs.”

The research also shows more than two-thirds of people with just a single type of insurance – that is, one out of the four forms of life insurance – subsequently believe that they have enough insurance overall.

“Often people seriously underestimate how much money they will need if they are unable to work again,” Mr Minto said.

The survey found that more than half (56%) said they either didn’t have enough life-related insurance (33%) or didn’t know (23%).

Depending on personal circumstances, different forms of life insurance are appropriate to protect people at different stages of their lives.

Mr Minto said: “The reality is most people need some combination of life, income protection, critical illness and total and permanent disability insurance. It can be a complex area, and we encourage people to ask for help so they can have the peace of mind that they have adequate cover rather than just hoping for the best.”

Other research findings include:

• Younger people (aged 25-34) are more likely than their older counterparts to recognise that they don’t have enough insurance (46%)
• Only 28% of those who rent say they have enough life insurance
• Those who believe they have enough insurance are more likely to:
  • have a high household income (53%);
  • be mortgage-free (67%); and
  • be married (49%).

“The real message here is that all Australians should check their life insurances at least once a year to make sure they have the right types and amount of protection. A rule of thumb that many believe that the minimum life and lump sum disability cover that should be taken out is 10 to 15 times the life insured’s annual salary. This in turn creates an income to meet ongoing needs of their family should the worst happen," Mr Minto said.

“Otherwise, despite their best intentions, people may be at risk even while they believe they are safeguarding their future dreams and the security of their family if they couldn’t work again for some unforeseen reason.”

Results to: Do you feel your household has enough insurance in the event that you or your partner are unable to work again?

Notes to editors

This survey was undertaken online by Galaxy Research on behalf of TAL with 1,266 Australians, from the ages of 18–69 years old. Age, gender and region quotas were applied to the same and the dataset was weighted to national proportions. State based figures available upon request.

Life insurance pays your family or estate a lump sum amount when you die. Your family can use this amount to pay off your mortgage, cover ongoing living expenses or invest it to pay for future expenses like your children’s education.

Income protection pays you up to 75% of your income if an illness, injury or accident prevents you from working. It is designed to replace your income, so that you can use it to pay your rent or mortgage, groceries, utility bills, and children’s school fees.

Critical illness insurance pays you an agreed amount if you are diagnosed with a specified critical illness event, such as cancer or heart disease. It is designed so that you can stop work and concentrate on getting better. You can use this money to pay down debt and cover living expenses, along with your medical costs and any modification needed to your home (such as rails or wheelchair access).

Total and permanent disability insurance gives you a tax-free lump sum if you’re permanently unable to work due to accident or illness. As you’re not able to work again, you can choose to use it as you wish. You can pay off debts and/or invest it to generate regular income.

Further information:

Stuart Snell 02 9448 9879/0417 921 235 stuart.snell@tal.com.au 

About TAL: The specialist voice of life insurance in Australia

TAL is Australia’s largest life insurance company with leading competitive offerings in each of its core distribution channels: direct to customers; through financial advisers; and via group and workplace superannuation schemes. With in-force premiums of $2.2 billion, TAL provides more life insurance solutions to Australians than any other insurer. TAL is owned by The Dai-ichi Life Insurance Company, Limited, one of Japan’s largest life insurers.