Widespread and profound naivety is the major cause of Australia’s underinsurance dilemma, according to latest research findings.
Commissioned by online insurance dealer, Lifebroker, the study found that a profound lack of awareness and understanding of both the financial risks posed by illnesses, injury and premature death, and the insurance policies that protect people from these risks, were the major causes of underinsurance.
Many of the research findings underscore the the alarming ignorance of Australian consumers when it comes to risk insurance:
- 71% of Australians mistakenly believe the federal government is required by law to provide financial support to families in the event of the premature death of a family member
- 70% mistakenly believe the federal government is required by law to pay a replacement income to workers if they stop work due to illness or injury not caused at work
82% mistakenly believe income protection insurance pays a replacement income if they lose or quit their job
- 82% mistakenly believe income protection insurance pays a replacement income if they lose or quit their job
- 85% mistakenly believe life insurance pays the consumer a lump sum payout if they live past retirement age
- 67% said they believe insurance companies use loopholes to avoid payouts
The research also revealed a lack of public understanding of the true financial consequences associated with injury, illness or premature death, Australians saying they were worried as much by the financial costs of a home burglary or crashing their car, as they were with the financial costs to their family of their premature death or having a medical condition that stopped them working for more than three months.
Not only does the research suggest that Australians undervalue the financial cost to them if the worst should happen, the ‘double whammy’ finding in the research also revealed that when consumers do consider life insurance, they vastly overestimate its cost.
But Mr Eade contends that consumers will take out life insurance cover when they see its value: “If you look at Australians’ attitudes to insurance in general you see they are quite prepared to buy insurance when they realise a risk exists that is worth protecting,” he said.
…the insurance industry has an obligation to raise awareness of the risks of underinsurance…
Mr Eade said the research shows the insurance industry has an obligation to raise awareness of the risks of underinsurance, the products available to protect people, the affordability of life and income protection insurance, and that insurers do pay claims when misfortune strikes.
Lifebroker advises that as a result of these finding it is developing a new educational tool designed to increase awareness and understanding of insurance.
