Underinsuring: Is it a Risk Worth Taking?

Have you put off buying Life insurance, because you think it isn’t affordable or too time consuming?

Anthony Brown

19 June 2017 - 5 minute read

Research commissioned by NobleOak reveals that 25 percent of Australians do not have any form of Life insurance such as term life, Income Protection, TPD or Trauma cover. Reasons given for not having cover included: lack of trust at claim time, high cost, covered in their super fund or didn’t see the need. And even those who do have policies, they may not have the right level of cover to meet their needs.

So let’s take a look at underinsurance, and the financial and emotional toll that may arise if you don’t have insurance in place at all.

How much of an issue is underinsurance?

Research by financial services consultancy company Rice Warner found:

  • The median level of Life cover in Australia would meet only 61% of basic needs and 37% of income replacement needs.
  • Median Income Protection insurance levels would cover only about 16% of needs.
  • The level of underinsurance for parents with young children is even more inadequate than median levels.
  • A couple aged 30 with young children needs nine to 12 years’ worth of income in a policy to meet basic needs, and 17-21 years’ worth for income replacement.
  • Median Life cover through superannuation is even worse – meeting only around half of average basic needs and even less (one-quarter) for households with children.

It appears that just when the needs for Life insurance and Income Protection increases for many Australians, they’re not adjusting their cover to compensate.

When it comes to Trauma cover, they are also tending towards underestimating the risk of certain serious diseases, most notably dementia, which is second only to heart disease as the leading cause of death in Australia.

Solving the problem of underinsurance

Many people have Life insurance through their super fund, with levels of cover often being determined by their age rather than life circumstances being taken into account.

Cover held outside super may offer more opportunity to tailor levels and types of cover to suit individual needs. Our research also indicates that better education and advice might be in order when it comes to levels of cover for Life insurance, Trauma insurance and Income Protection.

This may be especially important, with around 50% of people now seeking information on Life insurance over the internet and using online comparison tools. Only around 25% of those surveyed indicated they would use a financial adviser to find out about cover.

Are you adequately covered?

There can be both an emotional and financial cost to a lack of Life and Income Protection cover, especially if you’re the main income earner. If something did happen that prevented you from working for a while, or even resulted in your death, your family’s lifestyle and financial security could suffer. And while workers’ compensation and health insurance may provide benefits in certain circumstances, these types of cover tend to be limited.

While approximately three-quarters of people surveyed for our research consider there is enough information online to help them understand the different types of insurance products and levels of cover, it’s also clear that many are underestimating how much cover they need and are underinsuring themselves.

One way to determine how much cover you may need is to use our online calculator. Or if you prefer, you can contact the NobleOak team for a quote. With good information, finding the right type of insurance and level of cover for your circumstances doesn’t have to be complicated or too costly!


NobleOak, Life Insurance in Australia – Consumer Behaviour Transformation, viewed 9 March 2017

Rice Warner, Australia’s Relentless Underinsurance Gap, viewed 9 March 2017


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