Large numbers of Australians could find themselves struggling not only with emotional distress but also with the financial challenges associated with the major life events, according to a recent report. Financial Advisor Tony Bates explores what this means for you.
Almost 50% of Australians have experienced income loss due to serious illness during their professional life, yet just over a quarter are insured against trauma, illness or disability. And scarier still, this is despite the fact that almost one-third of survey respondents said they have less than one month's savings to use in such an event
A recent survey from Zurich in partnership with Oxford University warns of Australia's 'income protection gap', referring to the mismatch between an individual's need for income protection and their actual cover. 
The survey reveals that Australians have poor financial literacy on insurance in general, with only 19% of respondents reporting a 'good to very good knowledge' of disability insurance.
Read more about the importance of seeking financial advice about your personal insurances
There are two phenomena that arise from this: Mis-insurance and under-insurance.
Mis-insurance describes having the wrong type of insurance, while under-insurance refers to having the right type of insurance but not enough cover.
The consequences? Not having the right insurance or inadequate insurance, which can be very serious and the problem for many Australians is that this is often only seen when it comes to claim on the insurance: Many Australians don't get the full entitlement despite having full paid the premiums.
An earlier white paper from Zurich Insurance sought to understand Australians' understanding of their life insurance cover, including any that may be available through super.
The findings showed that Australians generally don't know the extent of coverage in their super nor whether it suits their circumstances and risk priorities. A significant proportion of respondents incorrectly believe their super fund life insurance covered them for trauma and other conditions, when in fact it doesn't
The white paper also identified a significant misalignment between the individual's financial situation and their stated risk protection. For example:
- 58% of those surveyed indicated that if they were unable to work because of illness or injury, they could survive for no longer than three months before needing to sell assets.
- However, despite their stated reliance on income, when asked which of the risks to their financial health they were most concerned about, only 10% said they were worried about losing their income.
This is obviously a cause for concern.
When it comes to personal risk insurance, there is no substitute for professional advice that is specific to your circumstances. Implementing personal risk insurance is complex and requires careful consideration of:
- The level of cover that is appropriate;
- The premiums and payment structure;
- Whether the policy represents good value for the benefits that are included; and
- Whether the insurance company has a good reputation for using clear and useful definitions and when it comes to paying the policyholder's entitlement in full in the event of a claim.
A professional will also be able to assist with managing the process of claiming for your full entitlements during an emotionally difficult time.
For help to implement a strategy for your personal risk insurances or to review your existing personal insurance arrangements, please contact Tony Bates on firstname.lastname@example.org.Tony Bates is a Financial Advisor for Bates Cosgrave Wealth Management and licensed under AFSL 500640
The information (including taxation) contained within this document is of a general nature only and neither represents nor is intended to be personal advice on any particular matter. Bates Cosgrave Wealth Management strongly suggests that no person should act specifically on the basis of the information in this document, but should obtain appropriate professional advice based on their own personal circumstances. Licensed under AFSL 500640
1 Oxford University & Zurich Insurance, Report: Income Protection Gaps: a rising global challenge. Accessed 19 July 2017
2 Zurich Insurance, Research Whitepaper, February 2014, 'Australians and life insurance: misinformed, misinsured?' Accessed 19 July 2017
This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.