Posted February 16, 2016

The Problem of Under Insurance

Stuart Wright
Partner, Kerin Lawyers


  1. The Issue
  2. Why people do not hold enough insurance
  3. Examples of what can happen when people are under insured
  4. What can you do about the problem, even if you have a limited income

The Issue – the bad stuff

  • Australia is one of the most under insured western countries in the world – of developed western countries, it ranks about 16th for people holding appropriate levels of insurance.
  • Various statistics that have been put out over the last few years that indicate the majority of Australians are extremely under-insured when it comes to their personal insurances, such as life insurance and income protection insurance.
  • About 22% of people in Australia have life insurance.
  • And, of the approximate 4.5 million working parents in Australia who have dependants, a sad fact of life is about 1 million of those parents will fall critically ill at some point in their working lives – the result of that is that the family income generally drops to at least 50% or more.
  • Most people consider it more important to insure their motor vehicle, rather than the most important asset – themselves.

Why people do not hold enough insurance

  • There are a host of factors why people feel that they are unable to properly insure themselves, the common factors being
    • They can’t afford it;
    • They don’t think they need it – often these people have no family history of significant health issues;
    • The ‘she’ll be right mate’ mentality
    • The government will take care of me if I fall sick – either through workers compensation laws or other types of assistance
    • Confusion over the different types of insurance

Examples that I have encountered in the last couple of years

  • In my own practice, I have come across many people who have found themselves in extremely unfortunate positions because of a lack of personal insurance;
  • Often these people are the victims of bad luck, however faced with problems with their health because of injury or disease; there is often a devastating effect upon themselves and also their families. – I’ll give you a few examples:

Example 1

  • I recently had a 48 year old male come in with his wife. Approximately 2 years ago he was doing some home renovations when he stepped on a rotten nail that went through his foot.
  • The incident was clearly an accident and there was no other party to blame apart from bad luck
  • This man then went onto suffer a significant infection in his foot, had many operations and is now in a situation where he can no longer work.
  • He had come in to see me to check what options he may have under his superannuation policy, however when we did the check, we found that this man had no insurance under his superannuation policy.
  • The options for this particular person were extremely limited. He has mortgage repayments and a wife to support. The reality is that he may well be faced with selling his home and relying on Centrelink payments for the rest of his life.

Example 2

  • Had a gentleman aged 44 whom was driving a vehicle for an employer and the tyre blew when he was driving the vehicle, causing the vehicle to overturn and cause an accident.
  • The truck had been well maintained and no one was at fault for the accident occurring.
  • The person was able to receive WorkCover payments for about 12 months. However, because the accident was no ones fault, this persons WorkCover entitlements ceased once his conditions stabilised.
  • Again, he had no personal insurance. He has significant mortgage and other debt obligations and cannot service them.

Summary of examples

  • The above examples are increasingly common.
  • I think everyone knows, particularly at present that the Australian government’s ability to continue to help people, particularly with an aging population, is only going to be become significantly less.
  • Most people never think these sorts of things will happen to them – however they are becoming increasingly more regular occurrences.

The Good Stuff – what can be done

  • The good news is that there are a number of things that people can do to protect themselves.
  • It is a matter for people to obtain their own advice from an advisor of their choice, but certainly one of the easiest and most cost effective options is to take out either income protection policies or life insurance policies (ideally both) under their superannuation.
  • The benefit of doing this is the cost of the premiums for these types of policies, comes out of your super fund, rather than out of your weekly pay packet.
  • In the case of income protection insurance, generally, any payments that you make out of your superfund are tax deductible which generally means that you will recover some of the cost of the premiums as well. Again that is a matter that people should obtain their own advice about.

Income protection – the different types of policies and which one is right for you.

  • Generally, there are policies that you can take out that allow people to have income protection insurance for a period of 2 years or alternatively, up until the age of 65.
  • My general advice is that the policy through to age 65 is always the best way to go, particularly for people who have debt obligations such as mortgages.

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