Time to get talking and make sure your family has the cover it needs.
Time to get talking and make sure your family has the cover it needs.

Where it counts, we just don't have the right insurance cover

LIFE insurance is one of a handful of products that people buy and hope to never use.

And when it comes to death cover or total and permanent disability cover - two key types of life insurance - we really, really hope to never use them.

The fact that people don't like to think about death and disability is a key reason for Australians being so massively underinsured in terms of having enough cover to protect their families.

Research group Canstar says only about one-third of Australians of working age have life insurance and as a nation we are underinsured by about $1.8 billion.

Apart from death and disability cover, the two other planks of life insurance are income protection, which replaces most of your income if you can't work, and trauma cover, which pays a lump sum if you suffer a critical illness such as cancer or heart attack.

Lifewise.org.au says three quarters of Australians will be diagnosed with a serious illness during their working lives. "Financial burdens at a time of intense personal pressure often lead to family and personal breakdown," it says.

It’s crucial to be ready for when disaster strikes.
It’s crucial to be ready for when disaster strikes.

Much of Australians' insurance cover is a default option held in their superannuation fund, and it usually is not enough to repay debts and provide enough funds for a family to survive without its main income earner.

JBS Financial Strategists senior adviser Glenn Malkiewicz said almost every new client he saw only had a default level of life insurance in their super.

"Probably 90 per cent of people don't have adequate insurance. They think it's probably not going to happen to them - and in most cases it won't - but when it does happen the financial impact is huge," he said.

There are online calculators that can help you work out what level of cover you need, and financial advisers will also do this.

"The issue for a lot of consumers is they see the direct insurance ads on TV - with their good marketing - but in most cases they are more expensive than what you get going through an adviser," Mr Malkiewicz said.

While most people require more life insurance than they have, Mr Malkiewicz said a quick review could save people money by:

•Comparing it with other deals in a competitive marketplace;

•Working out whether the level of cover could be reduced once family debts had been repaid or children had almost finished school;

•Switching stand-alone policies into super to reduce out-of pocket costs.

"Look at why the insurance was put in place - it comes down to trade-offs, but you get what you pay for," he said.