FPA and Zurich launch world first Insurance Literacy Index revealing financial literacy gap
More needs to be done to combat the life insurance literacy gap, with too many Australians incorrectly viewing services such as the NDIS and Centrelink as life insurance substitutes and relying on their super fund’s default level of insurance cover.
This is according to a new research report from Core Data which also found that financial advisers are key to the solution.
The Life Insurance Literacy Gap report, commissioned jointly by the Financial Planning Association of Australia (FPA) and Zurich Financial Services (Zurich), includes the inaugural FPA/Zurich Insurance Literacy Index, which quantifies for the first time ever the life insurance literacy gap. This includes Australians’ level of knowledge around insurance across products, in an aim to identify a response to the issue of mis-insurance.
Philip Kewin, Zurich GM for Retail & Life Investments, said that while we all know as a nation we are grossly mis-insured, the report shows just how much financial advice can help teach people about what type of insurance is needed to protect them.
“The FPA/Zurich Insurance Literacy Index shows there is a direct link between getting advice from a professional and improved insurance literacy.
“The Index shows the average insurance literacy score across those without a financial adviser is 4.5 out of 10, but when we look at just those who are advised the literacy levels jump by 50% to a score of 6.7, which is approaching ‘excellent’.
Mr Kewin said there are tangible examples of the positive impact advisers have on clients in terms of their understanding of insurance.
“We found that those who see an adviser are less likely to mistake services such as the NDIS, Centrelink and even health insurance to be life insurance substitutes. And for those Australians who have life insurance, the advised are considerably more likely than the unadvised to understand their coverage, with 82.9 per cent more likely to know their approximate sum insured.
“The real opportunity here is for advisers. Our report proves that advisers are effectively educating customers about different types of insurance including superannuation based life cover. By teaching clients about what insurance products are right for them at different life stages, they are continuing to prove their value but more importantly will turn more clients into advocates.”
The report also shows that while the majority of Australians hold some form of life insurance (59.9%), most of them sign up to these policies through their super fund (62.7%), with more than one in five (21.1%) sticking with their super fund’s default insurance cover because they trust their super fund or employer to know the correct level of cover for them.
This reliance on default cover is driven largely by a misunderstanding of the different types of insurance and financial protection.
“People often think that their default level of insurance cover is enough to protect them financially, creating a false sense of security. The risk is obviously that without a personal assessment of needs, people can find themselves in dire straits if something goes wrong, finding out the hard way that they are mis-insured, as their policy does not cover them for the risks they thought they were protected against,” Mr Kewin said.
Mark Rantall, CEO of the FPA, added that improved financial literacy is the key to better informed and protected consumers and more needs to be done to reinforce the value of financial advice for all, regardless of wealth or stature.
“A professional financial planner empowers their clients with knowledge and equips them to confidently make decisions about their future. This part of the advice process is commonly underestimated.
“‘The FPA/Zurich Insurance Literacy Gap’ report is a tangible and significant reinforcement of the value of financial advice and financial planners and we hope it will have a positive impact on the number of people prepared to proactively seek financial advice.
“The area of life insurance, specifically the issue of mis-insurance of Australians is a major concern for the FPA. Ensuring Australians are appropriately protected is of national importance and Zurich and the FPA are committed to supporting FPA members so they can continue to educate clients around the benefits of insurance and the right products for their particular needs.”
Please click here to view the full report.