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News & Articles

Life Insurance

2 June 2010

The death or serious illness of the breadwinner can have a devastating effect on a family, especially if the person is self-employed.

Recent research for the life insurance industry has found that one in five Australian families will experience the death of a parent, or a serious accident or illness that renders a parent unable to work.

The typical result will be that the family will lose half or more of its income because the breadwinner does not have sufficient income protection or life insurance.

In fact, 95% of families do not have adequate life insurance and this will cost the Federal Government $1.3 billion in additional social security payments over the next 10 years.

The research was carried out by the National Centre for Social and Economic Modelling (NATSEM) at the University of Canberra.

It found that these events create enormous strain on individuals and families, often made worse by the substantial financial burden that results when someone is unable to work for an extended period. In many cases this could have been avoided by adequate insurance.

The figures are frightening. Based on 2008 statistics, 118 Australian families lose a working age parent every day. Every year, 235,790 working age parents suffer a serious illness or injury and over 17,000 of them are forced to stop work, either permanently or for an extended period.

All this adds up to more than one million working-age parents with dependents being affected by death, serious accident or illness.

The typical family’s parents are in their 30s with two children, and have a mortgage. They also have typical levels of superannuation and life insurance.

In most cases, death cover, which is included in their superannuation, will be inadequate, and income protection is only offered as an option by a minority of funds.

"A family with young children, with typical levels of insurance, faces financial disaster as a result of the serious illness, injury or loss of one of the parents," the report says.

In scenarios where the husband or wife is temporarily disabled or sick, the family’s income drops by half or more after childcare and mortgage repayments. The family originally had $1,224 per week to live on and now must survive on about $600 per week.

If the husband dies, the family’s income drops to just one third of the original level, even after government benefits are taken into account.

The report’s projections show that in the longer term, if the hypothetical family had sufficient levels of insurance, they could maintain 75-80% of their remaining income over the next five to 10 years.

"This avoidable outcome highlights the importance of every Australian making a conscious and informed decision about protecting their most important asset – their ability to earn an income. It also highlights the broader economic consequences of underinsurance and the need for the federal government to explore policy options that encourage Australians to protect their financial future and, in turn, their way of life," the report concludes.

To discuss your Life Insurance needs contact Cameron Ogle of McKenzie Ross Life Solutions.

t: 03 9691 2222 

e: cameron@mckenzieross.com