Australia’s $800 billion underinsurance problem is predicted to rise as the fallout of last month’s Federal Budget continues.
Australian households are under mounting pressure to reduce their discretionary spending as they face reductions in various government concessions announced in last month’s Federal Budget, with the life insurance policy being tipped as one of the main casualties.
Dr Adrian Raftery, a senior lecturer at Deakin University in financial planning and superannuation, said that he expects the life insurance premium to be one of the first expenses to be dropped from Australian household budgets in response to reductions in government support.
“Whilst life insurance is a necessity, sadly most view it as a luxury item and will cancel it, or let it lapse, at first opportunity when cash flow gets tight“, Dr Raftery said.
With data from the Australian Bureau of Statistics estimating that the lives of working Australians could be underinsured by up to $800 billion, Dr Raftery said he was concerned the problem would magnify in coming months.
He suggested a tax deduction for life insurance premiums could be a solution to reversing the trend.
“We are already underinsured as a nation, so we want to encourage people to take out cover rather than give them opportunities to opt out,” he said.
Dr Raftery said he had personally witnessed the financial impact of the tragic and unexpected death of an uninsured friend on his widow and their three young children, which had been a harrowing experience.
“One of the saddest moments in my life was hearing at his funeral that my mate, aged 40, had cancelled his life cover only just a few months earlier,” he said.
“Sadly the ones that probably need it the most are the ones that won’t have any life insurance cover at all.”
Dr Raftery said Australians needed to be better educated about the levels of life insurance required.
“At an absolute minimum, families should have cover to the equivalent of their current mortgage commitments,” he said.
“They should also be encouraged to take out an additional amount as a buffer to fund children’s education and lifestyle benefits, such as holidays and personal effects.”
The Federal Budget announced a raft of cuts to concessions such as Family Tax Benefit Part B and the abolition of the dependent spouse and mature age tax offsets as well as the introduction of the temporary budget repair levy and a $7 fee to visit GPs.
GOLDEN RULES WITH PERSONAL INSURANCE
– Make it a priority in the budget – insurance should ALWAYS be one of the first items in any family budget … not one of the last. No exception.
– Think about your last gasp of air – when considering your insurance cover, you should be thinking about the look on your family’s faces if they are not financially protected when you die
– People do get run over by buses – it is never planned, but people do die unexpectedly. Cover the worst case scenario.
– Don’t lie in insurance applications – by not telling the truth to the underwriter at application may jeopardise your payout when you need it most.
– Cover the mortgage … and a little bit more – the basic cover that every Australian should have is their mortgage. Also think also about schooling, child care, everyday household running costs and lost income.
– Protect your income – what would happen if you couldn’t work for a couple of months? Do you have enough of a buffer to cover your mortgage repayments? Cover is tax deductible.
– Get your super to pay for it – to help with cashflow, get your superannuation fund to pay for your life insurance coverage.
– Check the terms and conditions – if you are unclear then talk to a licenced financial adviser or life insurance broker