One in five young Australians are underinsured

One in five young Australians, aged between 25 and 35, will leave their families in financial ruin, if they die prematurely, a new report has warned.

Another 20 per cent of those aged between 35 and 45, predominantly middle-income households with children and home mortgages, have less life insurance than the community standard.

As under-insurance worsens and access to financial advisers become harder because of declining numbers, in three years, only the wealthiest 15 per cent of Australians will be able to afford life insurance and personal financial advice, the report said.

Research by new industry campaign group, Choice & Access to Life Insurance (CALI) warned that under-insured Australians risk leaving their dependents facing “severe financial hardship” if they prematurely die or become unable to work.

If the current rate of decline in insured lives covered continues for the next five years

some 3,000 less claims per year will not be submitted due to Australians not having coverage. This is equivalent to $680 million per year in new claims not submitted which will cause additional misery and hardship for vulnerable Australians.

Regulatory reforms need to protect Australian consumers whilst making sure they can access an affordable advice system and ensuring life insurance is sustainable over the longer term, the report said.

Otherwise the pattern of under-insurance among young and middle-aged Australians, and the over-insurance of older Australians due to lack of access to advice, is likely to get worse at least over the next three years.

“Most ordinary Australians cannot afford to pay an upfront fee for financial advice and if trends continue, may not be able to access a financial adviser to help them identify their insurance needs,” the report said.

The government, regulators, life insurance industry have to agree on a reform roadmap for life insurance so that ordinary Australians will be able to access life insurance, the report recommended.

MLC Life’s newly appointed CEO, Rodney Cook said: “Access to quality and affordable financial advice and advised life insurance is a great benefit to Australians and we as a community must ensure that access to it remains within the reach of the many, rather than just the few.”

The Association of Financial Advisers’ CEO Philip Kewin told Riskinfo newsletter that in these uncertain times, people need to ensure they have the right protection for themselves, their families and their businesses.

“Access to affordable professional advice is critical to ensure people have the right cover at the right time. The CALI campaign is about ensuring affordable advice for all Australians – it’s the right thing to do,” said Mr Kewin.

AIA Australia CEO Damien Mu also told Riskinfo: “The research shows how important it is for decision-makers to consider the impact of life insurance regulatory change on everyday Australians; not just in terms of current policy settings but also any potential changes in the future. We need to ensure Australians have access to quality advice and choice to meet their protection needs.”