How long could you survive without an income before needing to sell your assets? Does your insurance cover meet your personal insurance needs?
According to a White Paper completed by a leading insurance provider, a worrying trend is emerging around misunderstanding by Australians in regard to personal insurances. It’s an issue that could affect the financial health of the nation and, more specifically, leave everyday Australians significantly out of pocket.
The White Paper1 by Zurich Insurance highlights in the Australian context the serious and growing phenomenon of ‘misinsurance’ which exists whenever there is a mismatch between an individual’s personal insurance needs and their actual cover. This applies in particular to life insurance and income protection insurance.
I believe the White Paper findings strongly reinforce the importance for individuals to seek expert financial advice about their personal insurances.
The White Paper reports upon Australians’ responses to questions about their general financial health and seeks to gauge their understanding of their life insurance cover, including cover that may be available within their super.
The findings indicate that Australians generally don’t know the extent of cover in their policy and therefore, whether it suits their circumstances and risk priorities.
In some circumstances, the consequences of having the wrong type of cover (‘misinsurance’) can be worse than having insufficient amounts of the type of cover (‘underinsurance’) which can result in policyholders not being paid their full entitlement at claim time, despite paying their full obligation of premiums.
The survey further reveals a notable lack of knowledge among those asked about their superannuation-based life insurance, especially in terms of their level of cover. A significant proportion of respondents incorrectly believed their super fund life insurance covered them for trauma and other conditions which are usually catered for by health insurance. It doesn’t.
The White Paper also identifies a significant misalignment between an individual’s financial situation and their stated risk prioritisation.
Fifty-eight percent 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.
It means that even though a person may know that they can’t survive for long without their income, they generally aren’t taking steps to protect it
I encourage you to seek expert advice on all financial matters and, in particular, when it comes to the complexity of personal insurance.
I can assist you to confirm appropriate levels of insurance cover for your circumstances, so that you can reasonably expect your full entitlements to be paid should you ever need to claim. Additionally, consulting with a financial adviser can provide you with a sense of confidence that you are paying neither more nor less than what you should for a level of cover that is suitable for your specific needs.
For more information to help you analyse your personal insurance and related needs, contact me on 0438 946 638 or email firstname.lastname@example.org
1. Zurich Insurance, Research Whitepaper, February 2014, ‘Australians and life insurance: misinformed, misinsured?’ Accessed 20 May 2015 at http://www.zurich.com.au/content/dam/australia/life_insurance/zurich-australia-whitepaper_australians-and-life-insurance_misinformed-misinsured.pdf
Phillip Dibben is a financial adviser at Active Financial Management. Active Financial Management and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306 trading as Fortnum Financial Advisers.
This information (including taxation) does not consider your personal circumstances and is of a general nature only. You should not act on the information provided without first obtaining advice specific to your circumstances.