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We’ve all seen the cheesy ads on TV. One features a group of women drinking coffee showing concern for another friend who is about to lose her home after just losing her husband. Another has a husband and wife team getting the kids ready for soccer while talking about the importance of keeping your family financially secure.

All of these sorts of cringe-worthy ads have two things in common – they all seem to employ really bad actors and trying to sell life insurance by pulling on the heart strings.

But given Australia has the dubious honour of being one of the most underinsured nations in the developed world (we rank 16th), it clear this tactic just isn’t working.

Perhaps it’s time to try something new – the simple truth.

If you or your partner died or were unable to contribute financially to your household, life insurance is not going to cure all of your problems. It’s not going to bring you or your partner back, nor is it going to take away the physical or emotional pain of your loss, injury or illness. Nothing but time can heal those sorts of wounds.

What it can do however is help ease the financial burden of mortgage or rent payments, doctor’s bills, childcare costs, school fees and household bills while you get yourself back on your feet. It allows you and your family the opportunity to focus on dealing with the important issues – spending time with your loved ones or choosing the right treatment options without the added stress and worry that comes with not being able to survive financially.

“That’ll never happen to me”

As a nation we have historically been disengaged with the issue of life insurance. While the vast majority of us insure our cars and home and contents, we don’t give a second thought to our life or ability to earn an income. Instead we bury our heads in the sand and take comfort in the idea that ‘it’ll never happen to me’ and that even if it does, ‘she’ll be right’.

A survey conducted by insurer OnePath Life in 2008 found that 89% of Australians believed they were not likely to have an accident that left them unable to work in the next 20 years. 80% believed they were unlikely to suffer a serious illness in the next 20 years.

These beliefs don’t really stack up when you consider the actual state of play. According to the Financial Services Council, 50,000 Australians have heart attacks every year and a third of women and a quarter of all men will suffer cancer at some stage in their lifetime. If you were one of these unfortunate people (and chances are you or someone you know will be) could you or your family survive?

“How much life insurance do I need?”

This answer will depend on your individual circumstances, but some basic principles apply. 

Working out the right amount of life insurance requires you to think about how much you would need to pay off all debts, how much money you’ll need to pay funeral costs, and how much you’d like to leave your family to meet their future financial obligations if you were to die.

The commonly accepted rule of thumb (as recommended by Rice Warner Actuaries in its Cost of Underinsurance Project report for IFSA in 2005) is that most people with dependent children generally need ten times their earnings in life insurance. So if you earn $50,000 you’d likely need $500,000 in life insurance.

“I’m ok, I’ve got insurance through my super”

While it is true that most super members have life and temporary and permanent disability (TPD) insurance (commonly through their super fund), many only have a default level of insurance. While this is better than no insurance at all, it is not likely to be able to provide financially in the event of death or disablement.

Rice Warner Actuaries also estimates that life insurance cover within super is on average only 20% of what most individuals and families actually need.

So if you, like many people, were under the assumption that your default level of cover within your super fund was enough, you may need to think again and consider increasing your level of cover. You should also review your level of cover as your circumstances change, for example getting married or divorced, having kids or grandkids or buying a house.

Our insurance benefits are extremely competitive so you may find it doesn't cost as much as you think for an appropriate level of cover.

“Super fund or retail insurer?”

While the most important thing is that you make sure you’re covered, there are distinct benefits to taking out insurance through your super fund.

Firstly, and perhaps most importantly for your back pocket, your premiums are deducted directly from your super fund member account. This means it’s more tax effective and premiums don’t come out of your disposable income.

Because super funds buy cover for all members, they get bulk discount rates from their insurer so you receive the benefit of scale. This means that the premiums you pay for the cover through your super fund are generally cheaper than the rate you could get outside super. It also means that in most cases you can afford a higher more appropriate level of cover through your super fund for the same price of reduced cover through a retail insurer.

Super fund members can also benefit from scale when taking out income protection cover through their super fund. Income protection insurance protects your income when you suffer short term disabilities by providing you with a regular income (usually anywhere between 75-85%) of your monthly income for up to two years. 
 
Importantly, as a member of a super fund, you generally have access to automatic default cover without having to do anything other than join as a member. However if and when you choose to increase your level of cover you may need to provide health information or undergo medicals.