A fundamental personal finance trap is to assume that your super fund’s default insurance cover is adequate for your circumstances. Chances are it isn’t.
The latest Underinsurance Australia report, recently released by independent consultants and actuaries Rice Warner, makes the point that most super funds aim to provide for part of their members’ insurance needs through their default cover.
“The median default cover of superannuation funds meets roughly 50 per cent of basic-level life cover needs for average households,” the report comments, “but a much lower proportion for families with families.”
As the report emphasises, striking a balance between adequacy and affordability is always a challenge for super funds given that member demographics and family circumstances can significantly vary.
The levels of default life cover for some younger members was likely to be higher than their needs given that many were not married and had no children. “In contrast, with changing family formation patterns and increasing debt levels at higher ages, default covers are often inadequate for older members.”
The Underinsurance Australia report covers life, total & permanent disability (TPD) and income-protection insurance obtained inside and outside super.
Key conclusions include:
-
The median level of life cover meets only 47 per cent of basic needs.
-
The median level of life cover meets just 28 per cent of the amount needed to ensure that family members and dependants can maintain their standard of living after the death of a parent or partner.
-
The median level of TPD cover meets only 14 per cent of needs.
-
The median income-protection cover meets 21 per cent of needs.
-
Only a third of the working age population (excluding dependent children) have income-protection cover.
Most Australians gain any of their life, disability and income-protection insurance through their large super funds. This means that a useful starting point for measuring your insurance needs is to understand the level of default cover provided by your fund.
Inadequate insurance cover can rapidly disrupt a family’s personal finances and investment planning following the death or loss of a job of a parent or partner.
It’s worth repeating that chances are that your super fund’s default cover is inadequate for your needs. Much depends on family circumstances.
Ensuring that your family’s insurance cover is adequate ranks highly among the principles of sound personal financial and investment planning.
For further assistance on this topic please contact us on 0415 306 000
Written by Robin Bowerman, Head of Market Strategy and Communications at Vanguard.
Source : Vanguard 2 February 2018
Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.
© 2018 Vanguard Investments Australia Ltd. All rights reserved.
Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for any action or any service provided by the author.
Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.