Be sure life cover fits your needs

Fibbing to avoid high insurance premiums is an issue, but the number of underinsured families in Australia is a bigger one.

A recent industry survey found almost one in five smokers would fib about their habit if it meant saving money on life cover. That’s a big no-no. The golden rule with any type of insurance is to be honest, or risk having a claim knocked back. But telling a few porkies to avoid high premiums isn’t the only issue impacting Australians and their life cover.

A more noteworthy problem is widespread underinsurance that could be leaving many families exposed to financial stress.

By way of background, most workers have some level of life cover provided by their super fund. It’s a good start. But I suspect few people realise how inadequate this level of protection can be.

A 2015 report by actuaries Rice Warner found the average young family needs life cover worth around $680,000. Yet the typical default level of cover provided by super funds is about $200,000. For many families that wouldn’t be enough to pay out a home loan let alone provide long-term financial security.

The shortfall exists because super funds use proxies like age and general population averages to determine the life insurance needs of a broad cross-section of members. Without knowing much about your personal circumstances it’s unlikely your fund’s default cover will reflect your family’s needs.

To be fair, most of the big super funds have online calculators to help members work out an appropriate level of cover. But according to Rice Warner they’re not widely used.

The thing is, it takes only a few minutes to work out whether your level of life insurance is sufficient to protect your family’s financial wellbeing.

First, look at the funds your family could access if you were to die. This can include money in super, savings, investments and existing insurance policies.

Then compare this to how much your family would need to manage the home loan, pay other debts and still cope with regular household expenses without a significant drop in lifestyle. If it turns out there’s a sizeable gap it could be worth upgrading your life cover.

Super fund members can increase their life insurance simply by contacting their fund. Or life cover can be arranged separately through an independent insurer.

Above all, please do check your cover inside or outside super. Too little could be catastrophic, equally you don’t want to be paying for insurance you just do not need. This often applies to “older” workers like me!


Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.

How much insurance do
you need?

There are many factors that can affect the level of cover you need. Our calculator can help you work out how much cover you may need.

Find out now


Want to keep up to date with the latest news?

Subscribe now

Explore your goals

Try our online tool to explore, prioritise and create your own goals timeline.

Start exploring

Want to keep up to date with the latest news?

Sign up now

Recommended articles

Important information

Show more

© AMP Life Limited. This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.