Are you underinsured?

Death cover, income protection, and total and permanent disability cover: these key types of life insurance can all play a role in protecting a family – especially those with children – if something happens to either partner.

Yet financial consultants Rice Warner¹ say Australia’s underinsurance gap – the difference between what cover people should have and what they do have – remains significant for the working age population.

And Rice Warner’s Underinsurance in Australia 2020 report underlines the widening gap between the amount of life insurance needed and the amount of life insurance held.

In particular, the total sum insured for both death and Total and Permanent Disability (TPD) cover decreased by 17% and 19%, respectively, over the two years to June 2020.

A separate study, Australia’s Life Underinsurance Report, prepared for the Financial Services Council in October 2022, suggests there are about 1 million Australians underinsured for Death and TPD insurance and 3.4 million people underinsured for Income Protection insurance.²

What does underinsurance mean?

Underinsurance can mean that people may not have enough to pay off debts, to afford important expenses such as children’s education, and to replace the future income of a missing parent.

Working Australians are in a position to avoid underinsurance because most have or have access to some level of cover via their superannuation fund.

Types of cover

QSuper, part of Australian Retirement Trust, offers affordable, generous automatic insurance for eligible members, with flexibility to personalise the cover according to your personal circumstances.

• Death cover - Pays a lump sum in the event of your death or if you suffer from a terminal illness.
• Total and permanent disability cover - Pays a lump sum if you suffer a total and permanent disability (TPD) due to an illness or injury.
• Income protection cover - Can pay you an income if you can't work due to illness or injury.

How to avoid underinsurance

The Australian Securities and Investments Commission’s moneysmart.gov.au service says the first step in preventing underinsurance is to find out what you already have. This includes contacting your super fund to see what cover you have.

Once you know that, it’s time to work out what existing financial safety net is available if you die or become disabled. Check how much money is in super, savings, shares and existing insurance policies, plus what family financial support is available, MoneySmart says.

Step two is to work out how much cover you require. You can speak with your super fund, an adviser or use online tools. “There are many online insurance calculators to help you work out how much cover you should have. Some have detailed questions, so it is a good idea to check a few different calculators to see a range of recommendations for your circumstances,” MoneySmart says.

We’re here to help

Our insurance needs calculator is a handy tool to help you work out your cover.

It asks questions including your age, income, number of children and their ages, assets including superannuation and investments, and debts such as mortgages, car loans and credit cards.

Our Member Online service also helps you manage and change your insurance.

1. Rice Warner, 19 November 2020, New research shows a larger underinsurance gap, https://www.ricewarner.com/new-research-shows-a-larger-underinsurance-gap/.
2. Financial Services Council, October 2022, Australia’s Life Underinsurance Gap: Research Report, accessed 25 May 2023