A majority of Australians are underinsured according to the latest Underinsurance Research report by Rice Warner.
The report found the median level of life insurance for working-age Australians covered only 42% of the financial needs (to maintain their standard of living) of remaining family members.
Here's a simple guide to stage-of-life insurance priorities:
Life stage - Early career
This can be a busy and social period, but if your adult children/grandchildren are unable to work for two or three months, perhaps due to an injury on the ski slopes or an illness, how will they pay the rent and phone bills or save for a house deposit?
Income protection, plus a choice of TPD or Trauma insurance (explained below) could be considered. A Commonwealth Financial Planner can help figure out exact levels of cover required.
- Income protection - covers up to 75% of current income, subject to a waiting period. Premiums may be tax deductible
- Total & permanent disability (TPD) - if you are permanently disabled and cannot work again the insurer pays a pre-agreed lump sum
- Trauma insurance - if you are diagnosed with a particular life-threatening illness covered by the policy, the insurer pays a lump sum
Life stage - Family with young children
Priorities have shifted. Parents are making their way up the work ladder but there could be financial pressures including a mortgage, a second car and supporting the needs of young children.
What if they were suddenly unable to work, even for just a few months? What if an accident or illness meant they were no longer around to help care for their family? How would mortgage repayments, school fees and living costs be met?
Suggestions for this period include a selection from the previous three covers - Income protection, TPD and Trauma - as well as Life insurance.
- Life insurance - pays beneficiaries a lump sum upon the insured’s death
Life stage - Mature couples and singles
You are reaching retirement and hopefully have a sense of financial comfort. But this is arguably the most important stage for your own personal insurance. Building a retirement fund, paying down a mortgage and supporting older children while facing statistically increasing health issues mixes great freedom with enormous responsibility.
Life insurance could be your priority. Also consider a mix of Income Protection, TPD or Trauma. If you’re self-employed, consider Business overheads cover, which looks after fixed operating expenses if you can’t work due to illness or injury.