The numbers are harder to ignore than most people expect
Around 44% of Australians have no life insurance outside of what sits inside their super fund. Of those who do have some cover, a significant portion are underinsured to a degree that would leave their families in serious financial difficulty. Research from Rice Warner, cited by the Financial Services Council, has estimated that the average Australian family has life insurance cover equal to only about 61% of what they actually need. That gap does not feel abstract when you start putting real numbers to it.
Three and a half million Australians are underinsured. That is not a fringe problem. It is a widespread one that cuts across income levels, age groups and family situations.
What does underinsurance actually mean?
Being underinsured means having some cover, but not enough. It means your family would receive a payout, but the payout would not be sufficient to cover the mortgage, replace your income for a meaningful period, or keep the household running through a difficult transition.
The more common situation is people who took out a policy years ago and never updated it. Their mortgage has grown, they have had children, their expenses have changed, but their cover has stayed the same. Life changes; most insurance policies do not automatically follow.
We insure almost everything except ourselves
Think about what gets insured without much thought. The car. The house contents. The phone. Travel. Even pets. These are things that can, in most cases, be replaced or done without. The income that funds everything in your life, the ability to keep working and earning, rarely gets the same treatment.
That is not a criticism. Most people simply have not had the conversation. Insurance is one of those things that feels like it can wait until tomorrow, and tomorrow tends to stay tomorrow for a long time.
The $135,000 problem
The default life insurance that comes with most super funds typically pays out somewhere between $100,000 and $200,000. For someone carrying a mortgage of $650,000 or more, plus the ongoing costs of raising a family, that sum does not go very far. It might clear a portion of the debt. It will not replace an income or give a surviving partner the financial breathing room to grieve and rebuild.
Super-based default cover also has other limitations. It can erode through fees if the account is inactive, it may not be appropriate for your age or health situation, and the definitions of what qualifies for a payout can be more restrictive than standalone policies.
Why people do not review their cover
The most common reason is time. People are busy, and reviewing insurance does not feel urgent until something happens. The second most common reason is that it feels complicated or uncomfortable to think about. Sitting with a stranger and discussing what happens if you die or become seriously ill is not most people's idea of a good afternoon.
The third reason is cost. Many people assume they are already covered through super and that taking out additional cover is an unnecessary expense. Sometimes that assumption is correct. Often it is not.
What a review actually involves
A proper insurance review is not a hard sell. It is a conversation about where you are now: your mortgage, your income, your family situation, what cover you currently have and what the gaps look like. From that conversation, you get a clear picture. Sometimes the answer is that you are reasonably well covered. Sometimes it reveals a gap that is worth addressing while you are still healthy enough to get cover at a reasonable premium.
The time to review your insurance is before you need it. Once something has happened, the conversation changes entirely.
If you have not looked at your cover recently, or ever, our team at Shire Life Insurance is happy to walk you through it. No pressure, just clarity. Book a review at shirelifeinsurance.com.au.