Many Australians have put themselves at great risk, as they do not have adequate life insurance to cover their high levels of debt. Research into underinsurance was conducted by the Investment and Financial Services Association, who are able to share some information on the issue.
The startling research revealed that 95 per cent of families do not have adequate life insurance. This highlights the point that most Australian families would be unable to continue their current lifestyles should the main bread winner pass away, fall seriously ill or become badly injured.
Taking into consideration that 50,000 Australians have heart attacks each year and one in three people will suffer from cancer at some point in their lives, the chances of the serious illness or death of an immediate family member are clearly significant.
According to an Investment and Financial Services Association 2008 report, more than 235,000 people who were in a partnership with children had suffered a serious injury or illness in the past year. Australians tend to have the “it won’t happen to me” mentality, but unfortunately the facts speak for themselves.
The Impact of Debt on Insurance:
Dr Taggart, of the Association of Financial Advisors (AFA), stated that Australians presently have “the world’s highest ratio of household debt to household income”. In simple terms, this means that our debt is greater than our income. On average, Australian mortgages are around $280,000 and the average credit card debt is a little over $3000. If you combine this amount, with car loans, children’s education costs, annual holidays and the general cost of everyday living, you can understand why Australians have such a high level of debt.
Looking at studies from 2009, they show the average claim for life insurance was $132,537. This amount of money would not come close to covering any sort of debt or lifestyle of the average Australian, should a main income earner pass away or fall sick. If you take a look at not only the levels of debt you have, but also the lifestyle you are living now, you have to ask the question; would you be able to continue living the life you have now with the level of cover you have? And if you don’t have any cover at all, it’s time to ask yourself why not.
The first thing many people don’t realise about income protection insurance is that the payments made are taxable. Because of this, they remain under the false assumption that the benefit they are insured for is what they receive in the pocket each month. Keeping the insured benefit of an income protection policy in line with your current salary is imperative to avoid the problem of underinsurance. We have found this problem with clients in the past.
An unfortunate situation that we’ve witnessed is where a client has a two year benefit period on their income protection policy. After two years they are stranded in a situation where their payments were ceased. Ultimately, this required them to seek Centrelink support via the Disability Support Pension, with a resulting income far below what they were used to. Don’t let underinsurance become a problem for your future. Make a plan with your financial adviser and safeguard your wealth and peace of mind. Contact Cotter Financial Services today.