Underinsurance still plaguing Australians
Group insurance through super has improved coverage.
Submissions from Australia's leading superannuation bodies to a parliamentary inquiry into the life insurance industry has found the level of disability cover and basic life insurance to be inadequate, particularly among working families with children.
As part of their submission, the Australian Institute of Superannuation Trustees (AIST) and Industry Super Australia (ISA) referenced Rice Warner's 2015 research report Underinsurance in Australia, which reveals levels of underinsurance in Australia, although high in some areas, have decreased significantly as a result of greater levels of insurance held either directly or through superannuation funds.
However, the report also found the median level of life cover held in super meets about 61% of basic needs for average households and almost half that (37%) for families with children.
Around 60% of Aussies have Total Permanent and Disability (TPD) insurance but only 21% have the level of cover they actually need.
This underinsurance gap equates to a whopping $10,870 billion. Australians are also underinsured by $471 billion for basic life cover and $3,435 billion for income replacement life cover.
Most industry bodies agree automatic default group insurance cover in superannuation, provided to members on an opt-out basis, has helped combat the problem of underinsurance in Australia.
Over the past 20 years, the evolution of group insurance has seen up to 92% of the working population afforded some type of coverage they would otherwise wouldn't have.
The Association of Superannuation Funds of Australia (ASFA) reports that up to 15% of its members "opt-up", increasing their default level of cover, while less than 5% "opt-out" and cancel their cover. This suggests fund members associate insurance within super as valuable and beneficial, with increased levels of cover required to meet their needs.
Life and disability insurance cover held in superannuation accounts generally has more affordable premiums than comparable policies held outside superannuation.
Premiums for a given level of cover within superannuation is lower for both men and women aged 30 to 60 years. For females, the difference in premium prices ranges from 25-55%, while for males the gap is even higher at 35-60%, increasing with age for both genders.
Cases of over-insurance also occur, especially among younger super fund members without children, according to the AIST and ISA submission.
The cost to the government on social security expenses as a result of underinsurance exceeds $1 billion per annum - $840 million for TPD, $140 million for income protection and $60 million for death cover.
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