The Financial Planning Association of Australia The Financial Planning Association of Australia

Understanding personal risks and how to protect against them

More than a third of Australians believe they would not be able to financially survive for more than a month before needing to sell assets if they were to fall ill or become injured and were unable to continue working.

This is one of the most startling results from Zurich’s ‘Misinformed, Misinsured?’ whitepaper, which surveyed 394 employed Australians to try and pinpoint whether people properly understood what they are and aren’t covered for through their life insurance, and how this aligns with their own risk priorities.

The results revealed a significant knowledge gap.

  • Of those who are covered by their superannuation group life policy, a number wrongly believed they were covered for traumatic illness (11%), hospital expenses (7%), retrenchment (6%) and even dental and optical costs (5%).
  • Less than a quarter (23%) were aware of the amount they were covered for under Income Protection, and just 15% correctly identified the waiting period (the time lapse between a claim being made and payments beginning).
  • Almost 80% of those surveyed said they had never conducted an analysis of their own life insurance needs, which would leave their family devastated by their loss, illness or injury, and the financial strain that follows.

And whilst the concept of underinsurance – where consumers have the right cover but insufficient amounts – is well documented, the concept of ‘misinsurance’ has received less coverage, despite being just as problematic.

Misinsurance describes the phenomenon where people either don’t know what they are covered for, aren’t covered for what they think they are covered for, or don’t have the cover that actually suits their circumstances and risk priorities. Similarly they may not realise what types of cover are even available.

Despite the value of the ‘default’ coverage now offered automatically through many superannuation funds, there is a downside. It creates a false sense of security amongst individuals with such cover, who assume that life insurance and income protection is a homogeneous ‘box they have already ticked’.

Don’t rely on the common misconceptions that should anything happen to you, you will be protected by your default superannuation fund cover, workers compensation, or even government-provided services like the NDIS or Centrelink. The truth is that for many people – even if you have this cover or are eligible for these ‘safety nets’ (and many people aren’t) – the protection offered is minimal and not adequate to maintain your lifestyle or take care of your family.

Only a professional financial planner can advise on the appropriate type and amount of cover for your unique circumstances. They can also advise you on the ins and outs of funding your cover through superannuation.

With recent research from the Financial Planning Association and Zurich showing that financial advice clients are better informed and better protected, it is clear that the biggest favour Australians can do for themselves and their loved ones is to consult a qualified financial adviser.

There are a few rules of thumb that you can use to get an idea of what your level of understanding and preparation should look like.

In terms of protecting your income, think about your weekly or monthly living expenses and how long you could survive if you were no long being paid.

In terms of life cover you need to consider the debts (mortgage and other loans) that would need settling if you were no longer around, plus the amount needed to generate an ongoing income to maintain the lifestyle of those you leave behind.

This should help build a better alignment between risks prioritised and risks you may actually face, as well as provide peace of mind about the value for money you ultimately get from your insurance premiums.

Contribution by Zurich Financial Services

Important Information: The content of this publication are the opinions of the writer and is intended as general information only which does not take into account the personal investment objectives, financial situation or needs of any person. It is dated August 2015, is given in good faith and is derived from sources believed to be accurate as at this date, which may be subject to change. It should not be considered to be a comprehensive statement on any matter and should not be relied on as such. Neither Zurich Australia Limited ABN 92 000 010 195 AFSL 232510, nor Zurich Investment Management Limited ABN 56 063 278 400 AFSL 232511 of 5 Blue Street North Sydney NSW 2060, nor any of its related entities, employees or directors (Zurich) give any warranty of reliability or accuracy nor accept any responsibility arising in any way including by reason of negligence for errors and omissions. Zurich recommends investors seek advice from appropriately qualified financial advisers. Zurich and its related entities receive remuneration such as fees, charges and premiums for the financial products which they issue. Details of these payments can be found in the relevant fund Product Disclosure Statement. No part of this document may be reproduced without prior written permission from Zurich. CLYH-010399-2015.