Are You Shouldering Too Much Financial Risk?

Death, critical or non critical illness and accidents are risks we all face. These risks can have severe financial consequences which we can insure against by paying a premium each year to insurance companies, so we and our family can maintain our desired standard of living in case these bad things happen. Alternatively we can save the premium cost each year and shoulder the financial consequences ourselves if these risks happen. Insurance companies and financial advisers argue that as a nation Australians are grossly underinsured and are taking imprudent risks. Many Australians prefer to spend the premiums on other needs rather than on insurance.

We all understand the need for a financial plan, but as we know unexpected events often derail these plans. Statistics show that approximately 70% of Australian workers will suffer from a long term medical condition which lasts six months or more. More than half of these disabilities will be due to illness, and the majority will be non- work related. Given financial obligations such as mortgages and growing families, many people are clearly playing dice and trying to beat the odds.

Insuring the income that your family depends on to meet living expenses should be considered a top priority. Insurance means that those who depend on you will not be financially disadvantaged in the event of a medical crisis or your death or disablement.

The Prevalence of Underinsurance

Most Australians today are underinsured. While this is not unique to Australia, the situation is worse than in comparable countries. Taking life insurance as an example, the "insurance gap" in Australia is 39% compared to 29% in the U.S.A. (source Swiss Re.). Well under 10% of working people have any form of income protection.

Some reasons for this underinsurance are:

• Financial planning is now strongly focused on investment products and shares which are considered more glamorous.
• Insurance products are perceived as being too complex.
• Insurance is regarded as a "cost" and generally needs to be "sold".
• The prevalence of stepped premium policies means that these policies are often discontinued as the premiums rise and when in fact people face higher risks.

If you think you may be underinsured or would like to review your existing insurance cover with us, simply follow this link: Enquiries and mention "Life Insurance".

Source: Personal Wealth

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