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Avoid the underinsurance trend

Many Australians are frighteningly underinsured. Avoid being part of the
statistics by calculating your life insurance needs adequately.

The day you’ve been waiting for has arrived. Your brand new car is ready to take home. The first thing you do before driving it out of the lot is ensure you have insurance. There’s no way you’ll risk anything happening to your brand new car!

This is a common scenario. Most of us don’t think twice about car insurance, ensuring we can meet unexpected repair costs. But what about repairing ourselves? If you were in an accident and couldn’t work, how are you and your family going to afford your medical bills? That’s on top of your mortgage and daily expenses too.

96% of Australian families lack enough life insurance to protect their families for 10 years or more, according to a study by TNS Research. So for young families, this underinsurance trend can be quite devastating.

Underinsurance facts

•• There are over 5 million families in Australia with
dependent children
•• Only 4% of families are adequately insured
•• Australia’s insurance gap equates to $1,370 billion.

How much life insurance do you need?

This varies considerably depending on many factors. If you’re unsure how much life insurance you have and whether it’ll meet your needs, it is definitely time to find out. Contact your Smith Wealth Partners adviser to discuss your requirements.

How much insurance do you have?

Many Australians already have life insurance cover through their superannuation fund so that’s a good place to start looking. Check your statement or contact your fund directly to find out your current level of insurance.

Also, find out if you have other life insurance. Your spouse may have arranged the cover, or you may have forgotten about an old policy.

Once you’ve uncovered how much insurance you have, it is important you read your policy terms and conditions. You can then assess how much you are covered for and identify if you are underinsured.

Is my superannuation insurance cover enough?

Like most Australians, you’ve discovered your only life insurance is through your superannuation. You’d be surprised how small an amount this cover is actually for. Rice Walker Actuaries estimate the average insurance amount payable from superannuation is approximately $70,000. This amount is far from the minimum required to be appropriately protected.

To meet your life insurance needs, additional and separate cover to your superannuation cover should be considered.

What about the home-maker?

Some may think – ‘I’m a stay at home parent, I don’t need life insurance.’ What most parents don’t realise is if the home-maker wasn’t around their family will require a lot of assistance, both emotionally and financially.

If your household was to lose the home-maker, the effects on the primary breadwinner can be devastating. If the home-maker died or became disabled, their partner is often left with limited options. They can either reduce their working hours to look after the household, or employ outside help. Either option requires additional funds.

Families losing stay at home mums may require more than $75,000 annually for child care or home help expenses.

To ensure you correctly identify how much insurance you and your partner have and how much you need you should seek advice from your financial adviser. They will be able to look at your overall financial situation, and help you make the right life insurance decisions to avoid the underinsurance trend.

Sources:
-TNS Research, Investigating the issue of underinsurance in Australia, August 2005.
-RiceWalker Actuaries, Analysis of Insurance Needs, May 2005.
-FSC, Australian mothers – undervalued and underinsured, October 2005
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