Going undercover
The holding of adequate life, total & permanent disability and salary-continuance insurance is a critical part of sound personal financial and wealth management.
Unless our personal insurance cover is sufficient, the death of a partner or loss of a job can undermine the ability to maintain our family's living standards, pay debts and to keep savings at least intact.
The list of personal finance implications – let alone non-financial issues – of being underinsured seems almost endless.
Yet the recent Underinsurance in Australia 2015 report, published by actuaries Rice Warner, calculates that the median level of life cover meets just 61 per cent of basic needs. (These needs are defined as the minimum amount required to pay all non-mortgage debt and sustain current living standards.)
Moreover, the median life cover is calculated to meet just 37 per cent of income-replacement level of insurance. This is the level necessary to replace the expected net income of the insured and maintain living standards.
And the median levels of total & permanent disability (TPD) cover is calculated to meet only 13 per cent of needs while income-protection cover will meet just 16 per cent of needs.
The level of underinsurance for parents with young children is much higher than suggested by the median levels of cover, the report emphasises.
Millions of Australians of course gain life, TPD and income-protection insurance through their super funds' default cover.
Unfortunately, a fundamental trap for super fund members is to assume that the default cover is adequate for their families' circumstances. Chances are it isn't.
Rice Warner calculates that the median cover of super meets only about half of the basic life cover needs for households without children and a much-lower proportion for families with children.
Significantly, the report stresses that default cover through super is intended to provide for only part of a member's insurance needs. This point underlines the need for individual members to take the initiative to ensure their level of insurance is sufficient – perhaps with the guidance of a financial planner.
A useful starting point may be to consider feeding your family's details into several online insurance calculators provided by large super funds. This should provide an insight into the level of cover needed and the possible costs involved.
Robin Bowerman,
Head of Market Strategy and Communications at Vanguard.
14 September 2016
Latest Newsletters
Hot Issues
- SMSF assets reach record levels amid share market rally
- Many Australians have a fear of running out
- How to get into the retirement comfort zone
- NALE bill passed by parliament
- Compliance focus impacts wind-ups
- LRBA interest rates increase for 2025
- Income-free areas set to increase from 1 July
- Most Spoken Languages in the World
- Middle-to-higher incomes boosting SMSF growth
- Investment and economic outlook, May 2024
- Transitioning into retirement: What you should know
- Plan now to take advantage of stage 3 tax cuts
- Deeming freeze a win for Age Pensioners
- Downsizer contributions can be time critical
- The superannuation changes from 1 July
- The Deadliest pandemics in History
- Winners & Losers
- Budget breakdown – Federal Government Analysis
- Federal Budget 2024
- Getting to a higher level of financial literacy in Australia
- What is the future of advice and how far off is superannuation 2.0?
- Investment and economic outlook, April 2024
- Australia’s debt service ratio ‘extraordinary’: CBA
- Connecting an adviser with your children
- ACCC scam report
- The Shortest-reigning Monarchs in History
- ATO warns trustees about increasing crypto scams
- Aged care report goes to the heart of Australia’s tax debate
- Removed super no longer protected from creditors: court
- ATO investigating 16.5k SMSFs over valuation compliance
- The 2025 Financial Year Tax & Super Changes You Need to Know!
- Investment and economic outlook, March 2024
Article archive
- April - June 2024
- January - March 2024
- October - December 2023
- July - September 2023
- April - June 2023
- January - March 2023
- October - December 2022
- July - September 2022
- April - June 2022
- January - March 2022
- October - December 2021
- July - September 2021
- April - June 2021
- January - March 2021
- October - December 2020
- July - September 2020
- April - June 2020
- January - March 2020
- October - December 2019
- July - September 2019
- April - June 2019
- January - March 2019
- October - December 2018
- July - September 2018
- April - June 2018
- January - March 2018
- October - December 2017
- July - September 2017
- April - June 2017
- January - March 2017
- October - December 2016
- July - September 2016
- April - June 2016
- January - March 2016
- October - December 2015
- July - September 2015
- April - June 2015
October - December 2016 archive
- Investor habits: The good, the bad and the ugly
- Keeping finances in the family
- The inter-generational financial squeeze
- Merry Christmas for 2016, a Happy New Year and a prosperous 2017.
- ATO set to clamp down on range of super issues
- SME retirement plans in jeopardy, research finds
- SMSFs show restraint in hot residential market
- Investment's building blocks - always worth reinforcing
- Warnings issued on traps with CGT transitional rules
- Meet SMSFs' early and late arrivals
- Beware, the ATO is on the hunt for lifestyle assets
- 'Brexit means Brexit' means what?
- SMSFs tipped to be hardest hit by pension changes
- SMSF assets hit record, but funds still hoarding cash
- Markets caution advised as economic bubbles loom
- Stretching retirement income
- Some financial terms explained
- Market Update – September 2016
- Checking in on our 2016 economic outlook - and looking ahead
- Making a fairer and more sustainable Superannuation System
- Going undercover
- ‘Winners and Losers’ from new super proposals