Underinsurance in Australia

Are Australians dangerously underinsured?


While we're getting better as a nation, Australians have a real problem with being underinsured. According to estimates from Rice Warner’s Underinsurance in Australia 2017 report, only a third of the working population have income protection insurance.

In December 2017, there were approximately 12,419,800 people in the labour force in Australia, meaning that there are some 8,279,866 people in Australia who are not adequately insured for this basic cover type.

A quick look at how Australians prioritise insurance

Australians have a real problem with being under insured

How much will underinsurance cost Australia in 2018?

According to the latest Rice Warner UnderInsurance Report, underinsurance costs the government in social security payments an estimated:

  • $54m per annum for death underinsurance
  • $500m per annum for TPD underinsurance
  • $692m per annum for income protection underinsurance

It's an issue that even ASIC has identified, pushing for more financial literacy at the high school level.

How underinsured are Australians?

Thanks to life insurance inside superannuation, which accounts for 70% of Australians with life insurance, our insurance levels are rising but according to Rice Warner "those who have life cover, the median cover level is estimated to be approximately $143,500, which is only twice the median household income." This is not nearly enough.

Death cover

A summary of Rice Warner's report by Vanguard Investments reveals that if the average Australian was to use their death insurance, then only:

  • 47% of their basic family needs would be met
  • 28% of the amount required by their family to maintain their standard of of living after the death of a partner would be met

Even more alarming for income protection and TPD cover

  • The median level of income protection meets 21% of needs
  • The median TPD meets 14% of needs

This further backs findings from Rice Warner’s 2015 Research Report Underinsurance in Australia, which found Aussies were underinsured by whopping $471 billion for life cover and $3,435 billion for income protection cover.

From 2005 to 2015, the Australian government increased default cover inside super from roughly $70,000 to $200,000. However, there is still an underlying life insurance gap in Australia. Many Australians have default life insurance included in their super but not enough to meet their needs:


Default level of life insurance cover



Average cost of raising a child



Average home loan size



Average credit card debt


Current insurance vs needsAmount
  • Typical default life insurance cover inside super.
  • Rough life insurance needed by Australians.
  • Underinsurance gap.

1. Rice Warner: Underinsurance in Australia 2015

Why is underinsurance an issue?

The problem with underinsurance is that you don't know you've got a problem until it's too late. If you don't have adequate life, disability, health or income protection insurance in place and something happens and you're unable to work, how will you pay the bills? According to a survey conducted by finder.com.au, 55% of Australians wouldn’t last three months without their job.

  • Almost 95% of Australian population families are underinsured2
  • Approximately one in five Australia families will suffer unforeseen event that will leave them incapable of working e.g. a death of a parent, injury or an illness2

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Statistics have shown that underinsurance is problematic in Australia

Most superannuation funds can deliver us a financially healthy retirement but it appears many of us have been neglectful when it comes to ensuring the life insurance part of our superannuation gives our families sufficient protection if we should die before retirement.

Life insurance came in with 54% having cover, just over half of those undergoing the study.

  • Car insurance was found to be the most important insurance to have in that 79% reported taking out motor car insurance.
  • Home contents and building insurance was next with 77% of respondents reporting they had cover in this area.
  • Private health insurance was held by 69% of those questioned.
  • Life insurance came in with 54 percent having cover, just over half of those undergoing the study.
  • Income protection, although growing, still only has a 45% uptake.

Who is (and isn't) getting cover

It appears that it's the younger generation who are running the risk of being under-insured as the uptake of life insurance was found to be higher among the 40 to 54 age group, especially the non-singles. This most likely represents the family age group carrying high mortgages especially those with pre-tax household income of $125,000 or higher.

Income protection is most likely to be held by both males and females under 55 years of age and once again by those with pre-tax household incomes of $125,000 or more. These figures, when applied to the whole Australian population, show that a staggering 95 percent of our population have inadequate life insurance cover.

How much will underinsurance cost Australians?

A 2010 Lifewise/NATSEM Underinsurance report estimated that such a level of underinsurance had the potential of costing the federal government $1.3 billion over the next ten years. To bring the underinsurance figures into perspective they should be matched up against other figures that show 18 families in Australia lose a working parent every day of the week.

Each year there are 236,000 people of working age who suffer a serious injury or illness and of these 17,000 are forced out of the workforce for a prolonged period of time, some permanently. Research undertaken in 2010 by the National Centre for Social and Economic Modelling (NATSEM) at the University of Canberra found that one in five Australian families will suffer from an insurable event during the parent's working lives.

Why are Australians underinsured?

There have been many reasons given as to why this is the case in Australia. Some claim it's an inherent attitude of "she'll be right mate" but the answer is even simpler. According to Rice Warner, it has more to do with a lack of awareness.

"It's generally due to a lack of awareness – default insurance through superannuation has been the main reason for reducing Australia’s underinsurance problem over the last decade," said a Rice Waner spokesperson.

Assessing Australia’s underinsurance problem: Life insurance myths debunked

There are various myths surrounding insurance, which could be the reason for Australia’s severe underinsurance problem. Here is a look at some of these myths, with a view to finding out what the reality is:

1. Insurance is only for those people who are not in good health

A lot of Australians believe that if they are in great health, they do not require insurance. Only those people who do not keep good health, or who have a long history of genetic illnesses in their family require insurance. Being in good health means they will live for years to come and can thus provide for their dependants without needing insurance. However, this type of thinking is completely erroneous.

Insurance does not only protect you in case of injuries and serious illnesses, but also covers you for untimely deaths. Therefore, regardless of how great your health is, this does not lower your chances of a premature death through accidents. And if that were to happen, you could at least have the peace of mind that your family will be able to survive because you had the foresight to buy adequate insurance.

2. Insurance policies are extremely costly

This is perhaps one of the leading myths regarding insurance and could be the top reason why Australians are underinsured. Most people have the belief that insurance is way too costly and they would never be able to afford it. Even if they did end up buying a cover that they could afford, it would certainly not be the amount of cover they actually needed. However, this again is a myth and not a reality.

Not only is insurance quite affordable, especially if you start planning early and buy insurance policies when you are young; but there are various tax benefits that you can take advantage of, which help to make insurance even more cost effective.For instance, insurance premiums that are paid for a life insurance policy that is taken through super fund are tax deductible. Also, as a person who is self employed, you may be able to get tax benefits for all types of insurance policies such as life insurance, total and permanent disability insurance, as well as income protection insurance. Due to the various tax breaks that you can avail of, the cost of insurance does become more affordable.

3. Insurance companies never pay out claims

Why would you pay your hard earned money towards insurance premiums when insurance companies never pay out claims when you need them? This type of thinking is very common and is a myth which leads to underinsurance. However, insurance companies do pay out claims and the money they pay out can be very useful to help you survive if you get injured or become sick. By opting for different types of insurance and making sure that you file claims in a valid manner, you can rest assured that you will be paid as per the benefits of your insurance policies.

4. The government will take care of us.

It is true that the Australian government does provide certain benefits to people who may lose their jobs or become unable to work, but the perception that these benefits will be enough to cover you and your family comfortably is extremely erroneous. Not only will you not be able to survive with government benefits, but the money hardly ever provides temporary support too. Therefore, you need to be responsible for your own future and should consider insurance to secure the same.

Debunking these myths may help to make Australians more aware about insurance and its advantages, which in turn could be the start to solving Australia’s underinsurance problem.

Impact of Australian Underinsurance

Here is a look at the impact an average Australian family can expect if they are underinsured:

  • A 50% reduction in the family’s monthly income. Studies have shown that should an earning member of a family not be able to work anymore for any number of reasons, the monthly income of that family will be cut by at least 50%. And if that member happens to be the main breadwinner of that household, then the monthly income could reduce even further. Without the benefits from an insurance policy to make up for this loss in income, that family is likely to face financial hardships that will be extremely difficult to overcome.
  • Having to sell off investment assets. A major accident or a serious illness can lead to very high medical bills. Hence, if you are not independently wealthy and you do not have adequate insurance cover, then you are looking at huge medical expenses with practically no way to meet them. In such situations, you may have to sell off whatever investments you have so that you can raise money for your health care and also to provide for your family till such time that your income starts again. Since no one can predict when an accident or illness will strike, you may find that you need to sell off your investments when they are at their lowest possible value. However, with adequate insurance cover in place, you can use the benefits from your insurance policy for these expenses and do not have to worry about liquidating your assets cheaply.

Insurance is thus a very important matter and all Australians should have different types of insurance cover such as life insurance, income protection insurance, and medical insurance. Not only is it necessary to take out insurance, but the more important thing to remember is that you need to have the right amount of cover for your family’s needs.

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1. Rice Warner: Underinsurance in Australia 2015

2. Lifewise / NATSEM underinsurance report 2010

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