Australians would prefer to increase savings or pay bills than take out insurance, which is placing many in danger of needing to refinance their mortgage or sell their home should trouble strike, according to research from CommInsure.
CommInsure’s Life Risk Survey 2012 found most would put a $1500 windfall towards savings (39 per cent) or bills (37 per cent); with just 2 per cent using it to take out insurance and just 1 per cent indicating they would top up their existing cover.
“We’re certainly seeing a savings culture amongst Australians right now, but a major illness, injury or the loss of a breadwinner would challenge any ‘rainy day’ savings and put many families at risk of losing their home,” said CommInsure’s general manager – retail advice, Tim Browne.
Trigger points
Whilst the majority of Australians have some life cover (60 per cent), one third (33 per cent) say the amount would not even pay off their mortgage, and a further 18 per cent were unsure if it would. Almost half took life cover out through their super fund with no advice and only one in five have ever topped this insurance up.
Predictably, the survey found that the most prevalent triggers for purchasing insurance are taking out a mortgage (28 per cent) and having a child (24 per cent).
However, faced with the inability to earn an income for over three months, 39 per cent of Australians would have to mortgage or re-mortgage their homes, 32 per cent would have to downsize their homes, and 28 per cent would be forced to move in with family or friends.
Further, 51 per cent would have to cut kids’ extra-curricular activities, 32 per cent would move kids to public schooling, and there would be no holidays for 88 per cent. Most Australians would have to tap into their personal savings (85 per cent), 30 per cent would sell personal assets and 21 per cent would seek to take out a loan.
In this scenario, Australians would be most likely turn to their partner or spouse (64 per cent) or the government (63 per cent) for financial support. However two-thirds (67 per cent), say they could only maintain their current standard of living on the average weekly Centrelink disability support pension of $350 for less than a year.
No protection
Fifty-four per cent of Australians do not hold any income protection cover and a further 11 per cent are unsure either way. Of those with cover (34 per cent), over half hold this through super and less than a fifth have ever topped this up.
“Many people seem to be taking a set-and-forget approach when it comes to insurance, holding cover in their super, typically not topping it up and not seeking advice,” Browne said.
“This creates a false sense of security that the insurance is taken care of, but a worst-case scenario can leave many families ill prepared and facing significant lifestyle adjustments.”
The survey also found that 64 per cent of Australians don’t have trauma insurance and a further 25 per cent don’t know if they do or not.
It further concluded that most people also severely underestimate the cost burden of treating and managing traumatic injuries.
Nearly 50 per cent put the cost of treating and managing spinal injury at below $350,000 over a five-year period. However, spinal injury is estimated to cost over $650,000 during this timeframe, with costs for a quadriplegic for the first six years including equipment and modifications at $123,593, healthcare at $297,453, and attendant costs at $343,5263.
“Unfortunately, there are around 5000 new cases of spinal cord injury reported in Australia each year. Without insurance, contemplating these kinds of numbers would add significant stress to many families at an already difficult time,” Browne said.
“This survey highlights that Australians are seriously underinsured and when under serious financial pressure, they prioritise today’s lifestyle needs ahead of insurance.
“Australians need advice on how to balance today’s priorities with tomorrow’s needs, as many options and alternatives exist that can help them make ends meet,” he added.
