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For many, your financial planning journey is about staying on financial track towards your goals (generally for retirement). The majority of my clients reach their goals through hard work and smart financial decisions.

But the reality is, though we won’t admit it. Luck plays a massive role, and no one is immune from health issues that affect your earning capacity and the financial wellbeing of your family members.

Yet in the nation of “she’ll be right”, Australians grossly under appreciate the need for life and disability insurance for when the proverbial hits the fan.

The Facts

  • Less than half of Australians have enough Life Insurance cover to provide the same standard of living for their families if they were to pass away.
  • The average level of current covers meets only 29% of Total and Permanent Disablement of needs.^
  • 35% of employed Australians do not have ANY disability insurance*
  • The underinsurance gap is much greater for parents of young children^
  • These underinsurance gaps are growing

But there’s the government Disability Support Pension, right?

It’ll look after me?

The reality is, if you receive disability payments provided by the Government, it is typically less than $500 a week (for someone over 21) aka less than $26,000 a year. ~

So good luck in the early retirement!

The Australia social security system can provide some relief to families who have lost their main income earner or for individuals who are no longer able to work to their full capacity. In many cases, it generally cannot maintain their standard of living. On the other hand, Life and Disability insurance provides households with meaningful payments to mitigate the impact of these life-changing events.

Life and Disability insurance provides a financial safety net and with this added financial security, enabling peace of mind. This outcome is an invaluable and tangible benefit.

Life and Disability insurance

So why do people not have enough cover?

There are a few prevalent misconceptions about life and disability insurance in Australia due to misunderstanding, lack of education or negative publicity.

Myth 1

Life and disability insurance is too expensive

The number of Australians purchasing life insurance has dropped since 2018 from 56% to 47%. According to an industry survey, 48% of respondents cited the perceived high cost of life insurance as the main reason for not having cover. #

Reality

According to a 2015 Insurance Barometer Study by LIMRA (a global insurance industry research organisation), 80% of consumers misjudge the cost of life insurance – Millennials overestimate the cost by 213% and Gen X by 119%. The reality is that life insurance can be highly affordable. According to Canstar research, a 40-year-old non-smoking Australian can obtain $500k of life insurance cover for between $40 and $80 a month.`

Myth 2

Insurers don’t pay on claims
The negative publicity arising from the Hayne Royal Commission has led to the misperception that insurers avoid paying claims.
Reality

APRA data` shows that in 2020, for policies bought through a financial adviser, insurance companies paid out on average:

  • 96.4% of Death claims
  • 84.7% of Trauma claims
  • 81.5% of TPD claims
  • 94.0% of Disability Income Insurance (DII)

Myth 3

Insurance erodes retirement savings

Reality

Insurance provided through superannuation is generally a more cost-effective way for individuals to obtain life insurance due to premium discounts negotiated for group arrangements or tax deduction benefits. Further, the industry has worked with Government and regulators to implement measures to protect superannuation balances against erosion.

Client Story

So, when I now tell you just in the last week, I have had a client aged in his 40s and father of 2 girls, diagnosed with advanced cancer at his annual health check-up, he is about to enter the most important battle of his life. With thanks to insurance coverage, we had in place for him, he will be worry free about where the next pay cheque is going to come from, to support his family whilst he undertakes months of chemo and radiation.
What are you waiting for?
Contact your financial adviser today and secure your future!
Written by Adam Bennett
Financial Adviser
Oracle Charlestown
adam bennett
References
* https://fsc.org.au/resources-category/research-report/1260-fsckpmg-underinsurancedi-lowres/file

^ Underinsurance in Australia 2020 report – Rice Warner

~ https://www.servicesaustralia.gov.au/individuals/services/centrelink/disability-support-pension/how-much-you-can-get/payment-rates

# Canstar (2019) – “Benefits of having life insurance: Is it worth the costs?”

` APRA (2020) – “Life insurance claims and disputes statistics”

Important information – Oracle Advisory Group makes no representation or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. The information in this document is general information only and is not based on the objectives, financial situation or needs of any particular investor. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek their own professional advice. Past performance is not a reliable indicator of future performance. The information provided in the document is current as the time of publication.
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