Third annual 2015 Australian Financial Protection Index released

The third annual TAL Australian Financial Protection Index has just been released, showing a generational shift in appetite for life and related insurance to Generation Y and away from Baby Boomers together with a rise in singles taking up coverage.

Overall, the 2015 national index score remained relatively steady from last year, dropping slightly from 33.5 to 31.6, but there have been swings in some of the key demographic groups.

A key takeout is the 2015 index shows younger groups aged 18-24 and 25-34 (collectively Gen Y) are increasingly improving their financial protection* scores, while older generations’ index scores are decreasing.

TAL Group CEO Jim Minto said: “One factor that may be relevant to the higher index scores among younger people is that these younger people entered the workforce at a time when post-GFC worries still permeate our culture.”

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“It may be that, in a more risk sensitive climate, they are looking to various life insurance options that can support them across various personal risk situations so that they can continue paying their debts and plans and dreams for the future.

Single person households also increased their scores, which may also be a reflection of concerns about the economy and the potential impact of not being able to work and earn an income due to unforeseen health related circumstances.

“With single person households on the rise, we may well continue to see an upward trend in this group recognising the value they see in life insurance to protect them. They may perhaps be increasingly aware that they only have themselves to rely on and losing their job or experiencing injury will have a huge impact on rent, mortgage repayments and other commitments,” Mr Minto said.

Those with a score of zero – meaning they hold no form of financial protection including life, disability, critical illness cover and income protection and acknowledge they are at risk – remained relatively steady with 2014 levels and encouragingly they continue to make up a much lower score than the inaugural 2012 index.

“Increased uptake of life protection among younger generations is heartening. However, the fact remains that the overall index score overall nationally is still very low reflecting that most people do not have enough insurance to cover their needs,” Mr Minto said.

“Despite the gains among younger people, the 2015 index tells us that many Australians are either not fully understanding the benefits of life-related insurances or, if they do understand it, they aren’t taking the next step to get the full amount of protection they need.”

Risk takers, high income earners, home owners and those with children had higher than average index scores score, most likely because of their increased awareness of the wide-reaching ramifications of loss of income due to illness, injury or death.

Mr Minto said: “Clearly we still have a way to go before Australians understand that life insurance is a highly effective way of protecting assets such as the family home, covering other debts – including credit card debt – as well as safeguarding aspirations such as lifestyle and extra supports for children including education.”

“Financial protection has an integral role to play in the life of virtually every Australian but as a nation we have much work to do to better inform people and close the protection gap.”

The Index measures perceptions of insurances held and its adequacy. It is modelled to calculate a score from 0 to 100, where 100 indicates that households have each of the four forms of life insurance (life, illness, disability and income protection) and believe they have adequate coverage if they couldn’t work again due to illness or accident.

Table 1: Financial Protection Index by age

Age	2014 Protection Index	2015 Protection Index
18-24 years	19.5	22
25-34 years	27.4	29
18-34 years Gen Y	24.5	26.4
35-49 years Gen X	39.7	36.4
50-69 Years Baby Boomer	36.9	32.6
All ages	33.5	31.6

 

Table 2: Summary of other key demographic findings

Household income p.a.	2014 Protection Index	2015 Protection Index
More than $90K	42	40
Between $40k and $90k	29	27
Less than $40K	19	19
Children living at home
Yes, under 18 years	39	35
No children	30	30
Marital status
Married/ de facto	38	36
Not married	23	24
Risk profile
Risk taker	42	44
Take some risk	38	35
Avoid risk	25	25
Home ownership status
Own freehold	38	37
Own with mortgage	40	35
Rent/Other	22	22
Household income type
Single person	31	32
Equal Earners (couple)	31	32
Family (one main earner)	37	33
State
NSW/ACT	33	30
VIC/Tas	32	31
Queensland	35	34
South Australia	35	31
Western Australia	35	35

 

Notes

This survey was undertaken online by Galaxy Research 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.

The model didn’t require stay at home parents, the retired and those over 65 to have income protection.

*Definition of the four main forms of life insurance (or financial protection): Life – lump sum upon death; Illness – lump sum for defined illnesses; Disability – lump sum upon permanent and total disability; and Income Protection – regular income payment upon defined illness/disability.