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Get real Minimising risk with appropriate real-life insurance
Much has been written in the past year or so about the insurance protection gap in Australia. This is a very valid and worthwhile discussion, as all relevant statistics support the argument that most Australians are grossly underinsured. In fact, even without the statistics, anecdotal evidence or just plain gut feel leads us to this conclusion.
However, most of the discussion so far has been on the lump sum benefit gap only. This, unfortunately, is far from the only area of concern.
Perhaps we should all ask ourselves some hard questions and then carefully consider our answers. I think questions like these highlight some real issues that go to the heart of underinsurance in our society. For example, if we were disabled and could not work (but not totally or permanently disabled), for how long do we think our employer would, or could, continue to pay our wages? Then, for how long after our income ceases could we realistically afford to maintain our family at anything near the level of comfort they currently enjoy, whilst at the same time making the payments on all our debts, including, of course, the mortgage?
Given the spiralling property market over the last decade in Australia as a whole and NSW in particular, and the resultant increase in the average size of mortgages to something in excess of $350,000 for NSW, it is quite clear that a high proportion of people do not have enough insurance coverage to protect them and/or their families against death or disability.
It doesn’t help that it has become almost the norm for salary increases to be used to finance greater debt. Living for the moment, rather than saving or protecting assets and income, has become a way of life. People will often buy a second car, renovate the kitchen or have a pool installed before they will spend money on protecting their family, their way of life and their existing assets against death or loss of income due to sickness or accident.
In fairness, determining how much of our income we need to protect is often a little more difficult than it is to work out an appropriate level of lump sum benefits. Perhaps this is why little attention is often given to this. Yet, it really isn’t hard if we begin by honestly answering the very basic questions discussed above. Most of us would need replacement income after weeks rather than months, and most of us would need a significant percentage of our previous income just to manage. A figure of up to 75 per cent pre-disability income is usually insurable.
This type of protection carries various names, including salary continuance, income protection or disability income insurance. Most superannuation funds now provide some kind of cover either automatically or as an option. Perhaps the decision-makers of funds that provide minimal or no income protection cover should ask themselves one more question. Why not? After all, the insurance gap is now well known, and the consequent need to provide at least adequate income protection, and life cover, is abundantly clear.
Phil Collins is general manager, IUS Life
AUTHOR
Mike Taylor
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