National Life Insurance Report 2010

Research

This was commissioned by Lifebroker to improve understanding of the underinsurance issue in Australia

This report contains the findings of national online research involving 1,000 respondents aged 25 plus, concerning their attitudes, knowledge and behaviour towards life insurance and income protection.

Immediate financial needs and future financial plans depend on our ability to earn an income.

Life and income protection insurance products provide funds when someone experiences an illness, injury or premature death, stopping them from earning an income. Life insurance pays an agreed lump sum in the event of death or terminal illness, and income protection insurance covers 75 per cent of a salary when the claimant is temporarily unable to work due to sickness or injury.

Underinsurance in Australia

Uptake of insurance in Australia

The research confirmed other studies that show Australians are significantly underinsured when it comes to life insurance and income protection insurance. Uptake ratios for life and income protection insurance fall well below those for car/home and health insurances.

While some respondents hold life and income insurance within super, between half and two-thirds of these people accepted the default level of insurance which is typically very low.



Uptake of life insurance is higher among:

• Males and females aged 40-54 and non-singles


• Those with a mortgage and households with a pre-tax income of $125,000 or higher

Uptake of income protection insurance is higher among:

• Males and females aged under 55


• Those with a mortgage and households with a pre-tax income of $125,000 or higher

Coping Without Life Insurance

If you were not insured and had to bear the entire cost yourself, how well do you think you and your family would cope financially?

Nearly half of respondents said they and/or their family would 'not cope well' or 'not at all' financially, in the event of their premature death or if an illness or injury stopped them earning an income for more than three months, and they had to bear the entire cost themselves.

This begs the question, why do people not have life insurance if they are aware of the effects that premature death can have on their financial situation?

Causes of Underinsurance

Which types of insurance are you familiar with?

In general self-reported knowledge of life and income protection is poorer amongst the potentially more vulnerable groups, including those with larger mortgages and those with lower household incomes.


Knowledge levels of life and income protection insurance are greater amongst males and increase with age for both males and females.

Superannuation and Life Insurance

While superannuation has increased the uptake of life insurance, it may also be contributing to a significant underinsurance problem.

• 62% of those who have life insurance exclusively through superannuation said they accepted the default amount of life cover in their super (48% have life insurance exclusively through superannuation). Default levels of life insurance through superannuation may be insufficient.


• 48% of those who have income protection insurance exclusively in superannuation said they accepted the default amount of income protection insurance cover (34% have income insurance exclusively through their superannuation). Default levels of income protection insurance through superannuation may be insufficient.

It could be argued that Superannuation gives people peace of mind as most people do have life cover under superannuation. However a vast majority of people have inadequate cover for their needs, more than 50% of people surveyed did not know how much cover they had in super.

A False Sense of Security

Many Australians falsely believe they are protected financially from illness, injury and premature death both by their superannuation and by federal government laws.

• 71% falsely believe the government is required by law to provide financial support to families in the event of the death of a family member.


• 70% falsely believe the government is required by law to pay a replacement income to workers if they stop work due to illness or injury not caused by work.

Have government road and workplace safety campaigns given the false impression?

A lack of trust

Many Australians are cynical about life insurance companies propensity to pay claims and lack trust in the advice process. Trust is an important issue for buyers of life insurance and income protection insurance.

• 67% of respondents said they agreed (strongly/somewhat) with the proposition that insurance companies tend to use loop holes to avoid payouts.


• 41% of respondents said they agreed (strongly/somewhat) with the proposition that they generally don't trust advisers/insurance brokers.


• 41% of respondents said they agreed (strongly/somewhat) with the proposition that it is difficult to get good independent advice about life and income protection insurance.

The Cost of Life Insurance

Overestimating the cost of life insurance is dissuading buyers of insurance

Why People do not have life insurance

The research discovered that one of the major reasons that people did not establish life insurance were premiums, however as previously noted there was also a misconception of life insurance premiums (most people believed them to be far higher than they actually are).

Q. Why don't you have life/income protection insurance?

- 36% of respondents who had insurance other than life insurance and income protection insurance said the perceived cost of life and income protection insurance was the major factor in their not having it.

Q. Please indicate how strongly you agree or disagree with the following statements about life and income protection insurance.

- 58% of respondents said they agreed (strongly/somewhat) that they believed life and income protection insurance premiums are far too high for the amount of cover you get.

Life and income protection insurance costs less than others

Q. Approximately how much do you actually spend per year on the following? Please provide your best estimate. (Base: Currently have relevant insurance and able to specify annual premium).



In reality those people who have life insurance and income insurance indicated they spent less on life and income protection insurance than other types of insurance, although many were unaware of the costs. This is highlighted further with a lens on Debt Protection.

Direct Life Insurance False Perceptions

Insurance purchased directly from a life insurance company is more expensive, a fact that may be contributing to the perception that life insurance in general is too expensive.

Awareness of Life Insurance

Australians' lack of awareness and understanding of the life and income protection insurance are manifested in several other findings.

Australians worry about burglary as much as death

Strikingly, Australians' concerns about the financial costs of damage or loss to their cars and homes are similar to their concerns about the financial costs of a serious illness, injury or premature death.

Q. How worried are you about the following happening to you?

Figure 4 - % worried about the financial cost of different events




Concerns about risks not being converted into action

Even though Australians express some concerns about the financial risks of illness, injury and premature death, those concerns are not being converted into the purchase of life and income protection insurance, while concerns about other risks are.

47% would not cope financially in the event of premature death of their partner

Life Insurance Low Priority

Another manifestation of Australian's lack of awareness and understanding of life and income insurance is the low value they place on it for achieving their financial goals.

When asked to rate the relative importance of seven different strategies to achieving their financial goals, respondents rated financial protection second last.