By Simon Keir, Westlawn Senior Insurance Specialist 14 April 2014
Research conducted by accounting firm KPMG reveals the average amount of disability insurance is just over 50% of what is actually required and that these high levels of underinsurance among much of the Australian workforce cost taxpayers $340 million per year … or a whopping $2.5 billion over 10 years.
The KPMG report on the Disability Protection Gap in Australia was commissioned by the Financial Services Council to measure the level of underinsurance among Australian workers aged between 18 and 64 and the consequential impacts on the nation’s social security costs.
Underinsurance, as defined in the report “is measured against an adequate level of insurance designed to cover basic needs such as outstanding mortgage balances, as well as ensuring that standards of living are broadly unchanged following the disability of a family member.”
The report adds that: “The typical employed person requires insurance of 84% of income until retirement age in the event of disability.”
Some of the report’s key findings include:
The level of underinsurance is highest for those aged 45 to 64, with levels of underinsurance between 74% to 83% of their total level of adequate insurance
35% of employed Australians do not have any disability insurance
Australian workers are underinsured to the tune of $304 billion per annum.
A burden on taxpayers
It seems we’re all paying for the high levels of apathy among Australian workers towards disability insurance.
The high level of underinsurance raises the cost of social security benefits and disability support pensions. The study found that higher levels of cover and post-disablement income would reduce the burden on the disability support pension. Currently, disability support pensions are the third largest social security benefit category behind Age Pensions and assistance to families with children.
The KPMG study estimated that with adequate levels of disability insurance, $340 million could be saved in a single year and $2.5 billion over 10 years.
Are you underinsured, or do you have enough disability insurance to cover outstanding mortgage balances and to maintain your family’s standard of living? To find out how much you need, contact Simon Keir today.
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Westlawn Life Insurance Pty Ltd ABN 91 164 146 285 is a Corporate Authorised Representative (No. 444800) of ClearView Financial Advice Pty Limited ABN 89 133 593 012 AFS Licence No. 331367 GPO Box 4232, Sydney NSW 2001.