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It’s a sad reality that the majority of us know of someone directly affected by hardship or tragedy. The death of a spouse, the permanent injury of a friend through a serious accident, a close colleague being diagnosed with a terminal illness – these are all things we don’t like to think about. However, a recent study commissioned by the Investment Financial Services Association (ISFA) has shown that for 20% of us, it will unfortunately be something we face within our own family during our lifetime.

The new report reveals that one in five Australian families will be impacted by the death of a parent or a serious accident or illness that renders a parent unable to work.  This equates to 18 Australian families every day.

Not surprisingly death, serious illness and injury are events that place enormous emotional strain on individuals and families. That strain is then often compounded by the financial burden that is the result of a family member being unable to work for a significant period of time – or in some cases permanently.  

The scary reality is that most Australians are completely unprepared to cope with the financial strain such tragic events will likely cause. Figures show that a whopping one in two super fund members are under-insured for death cover by $100,000 or more. The figures rise even more alarmingly for total and permanent disablement (TPD) cover, with 74% underinsured by $100,000 or more (1). 

So how has this happened?

As a nation we have historically been disengaged with the issue of life insurance. While the majority of Australians insure their car, only 31% of us actively take out insurance to protect our far more precious asset – our ability to earn an income (2). We’ve all heard the comments like “She’ll be right”, “It’ll never happen to me”, “Insurance – too hard – too complicated” but with rising household debt and more of us having children later in life, life insurance is not something we can afford to ignore any longer.

The way things stand currently, due to underinsurance, thousands of Australian families will be significantly impacted by avoidable financial hardship. This hardship may mean that not only do families have to learn to cope with the loss or permanent disablement of a family member but also deal with the loss of the family home and the letting go of future dreams for holidays and education choices for children. 

One of the best assurances that a family’s lifestyle can be maintained following such tragedy and hardship is to ensure that recommended levels of insurance are in place now. If this occurs, in most cases the family will be able to maintain a level of income the same - or close to - the level they enjoyed prior to the event, meaning essentials like mortgage and child care payments can continue to be met.  It is critical that people begin to take an active interest in their super policy and take the time to review what benefits it offers and what those benefits equate to in dollar terms should the worst happen.

In most cases your super policy is the most cost effective and efficient means of protecting you and your family, so it makes sense to combine your insurance with your super cover.

• Firstly, insurance with your super is low cost. Most super funds get bulk discounts on their insurance rates so this in turn means cheaper premiums. In addition because your premiums are deducted directly from your member account, it’s more tax effective.  
• Secondly, it’s easy and accessible. Just by holding a super fund you have access to automatic default cover. As we have discussed for some people default cover is not enough but it is a good place to start.
• Thirdly, it’s relatively simple. Most super funds strive to provide products that are clearly and comprehensively explained in member guides. Many funds also have useful tools such as insurance needs calculators for you to determine, based on your individual circumstances, what the appropriate level of cover is for you. 

Some super funds are attempting to meet the underinsurance challenge head on through the design and development of policies that adapt and change as people’s life stages – and financial responsibilities - change. More cover when you have dependents and a mortgage, less cover when you’re mortgage and dependent free. Makes sense, right?

But these innovative policies do not negate the pressing need for individuals to look at their own circumstances and ask the hard question, “How would my family cope financially if I or my partner passed away or could no longer work?” It goes without saying that these tragic situations are difficult enough without the added burden of trying to find new ways to pay bills and meet mortgage payments. If you don’t want that for your family, it pays to start thinking now about how you can best protect one of your most precious assets – your ability to earn an income.

1 2008 survey by the Australian Superannuation Trustees (AIST) and Industry Funds Forum (IFF)
2 2010 underinsurance report by Lifewise and Natsem, commissioned by the Investment Financial Services Association (IFSA)