10 Life Insurance Myths (part 2)

Myth 6 - Life insurance is a luxury I can’t afford

We can hear the hesitation from people when they first enquire about life insurance. They aren’t sure if they will be able to afford it. In fact, a lot of people are adamant they won’t be able to.

The Lifebroker Research Report tells us that when non-insured persons were asked to estimate the annual cost of a life insurance policy for a 40 year old non-smoker, 40% were unable to provide an estimate, while those who provided an estimate overstated the cost by between 49% and 65%.

It is within a lot of people’s means, they just don’t know it yet.

Myth 7 - I have life insurance through my superannuation, so I am set

The Lifebroker Research Report shows that 77% of respondents falsely believe everyone automatically has life insurance through their superannuation. Of that, 62% of those who have life insurance exclusively through superannuation said they accepted the default amount of life cover in their super. Default levels of life insurance through superannuation are often insufficient, with the default level around $20,000 for an average 40 year old. Would $20,000 be enough to cover your mortgage and continue your lifestyle?

48% of those who have income protection insurance exclusively through superannuation said they accepted the default amount of income protection insurance cover.

While some respondents hold life and income insurance within super, between half and two thirds of these people accepted the default level of insurance, which is typically very low.

Myth 8 - Everyone who applies for life insurance must have a medical exam

A very common misconception with personal risk insurance is that everybody who applies for insurance must sit a medical exam. Blood tests and medical exams are sometimes a requirement of insurance applications, there is no denying that. However, each application is assessed on its individual merits and the underwriters will decide if a medical exam or blood test is needed based on the answers given in the application. It is clearly one of the more common myths with 78% of people believing a medical exam is a necessity in life insurance applications, according to the Lifebroker Research Report.

Myth 9 - My work covers me with group insurance so I don’t need any extra cover

“Group cover is mostly based on formula driven benefits and does not take into account an individual’s needs and circumstances,” says AIA’s Howard Williams.

Australians have a chronic underinsurance problem, which means most of us don’t have enough cover to protect our families, if something unexpected happened. If you are in a position where you are fortunate enough to work for a company who cover their workers through group insurance, you are lucky but are you completely protected? Group Insurance will not take into consideration each individual employees situation. You may have group insurance for $200,000 life insurance, but if your mortgage amount is $500,000, you may not consider the group insurance to be an adequate level of cover.

Many employers also offer a variation of income protection insurance with limited benefit and waiting periods. What you need to consider is what happens if your disability lasts longer than the benefit period and also what happens when you leave that job. Will you be left exposed?

By protecting your family and assets through a specialist provider, you’ll find you have the cover that meets your needs, instead of just what your boss is willing to pay for.

Myth 10 - Life Insurance is not a necessity

Australians are significantly underinsured when it comes to life and income protection insurance. While people are happy to take out cover for their homes and their cars, when it comes to personal insurance, they fall well off the radar. 86% of people, according to The Lifebroker Research Report, have cover for their cars and 80% of people cover their homes, but only 25% of people have life insurance.

Nearly half of respondents said they and/or their family would ‘not cope well’ or ‘not at all’ financially, in the event of their premature death or if an illness or injury stopped them earning an income for more than three months.

Around one-third of respondents, increasing to 50% amongst those with dependant children, indicated they would not be financially secure or were unsure of their financial situation in the event of incapacity/death.

While Australians tell themselves life insurance is a luxury, not a necessity, they are also admitting they would struggle without it.

Part One of the article can be viewed here.