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Three ways you're outgrowing your insurance


September 2015


The more you have, the more you have to protect. Is your life insurance strategy falling behind?




Underinsurance can be magnified in wealthy households. Here we look at three common ways it can happen.

We may be the ‘lucky country’, but many Australians are riding their luck when it comes to life insurance. Rice Warner actuaries estimate the insurance gap in Australia is around $1.8 trillion or 40 per cent of basic life cover needs.1

If you think this gap doesn’t apply to Australia’s high-income earners, think again. According to ANZ Private Bank specialist risk adviser Tom Culver, underinsurance can actually be magnified in wealthy households.

“There’s a common assumption that wealthier families have less of a need for life insurance,” Culver says. “But the risks are generally the same – it’s just that the numbers are far greater.”

Insurance is there to protect your lifestyle and your plans for the future.
The bigger your goals, the more you have to protect.

Here are three common scenarios where high income families can find themselves underinsured:

1. Upsizing your life but not your insurance

Many successful people will find their career and family lives progress rapidly, particularly in their 30s and 40s. This is often the point where their life insurance strategies become outdated.

“When your earning potential increases significantly you tend to change your lifestyle to reflect that,” Culver says. “You might move from a $2 million house to a $4 million house, grow your family, plan to retire at 55: your whole financial landscape can change completely.”

A life-enhancing career move often leads to higher debt levels and increased living expenses, which increases your level of risk.

The purpose of life insurance is to protect everything you’re working to build for your family, so those goals don’t have to be abandoned if you become sick or disabled. As your family’s goals and expectations increase, your insurance needs to increase to reflect that.

2. Relying on insurance inside super

For a number of years it has been compulsory for employers to provide life insurance for their employees inside super.

This legislation has boosted the level of insurance cover for many Australians. However, there are limitations on what type of cover you can have inside super mainly due to the restrictions imposed by the Superannuation Industry (Supervision) Act 1993 (Cwlth) – particularly around income protection and total and permanent disability (TPD) cover.

For income protection, policies inside super can generally only pay benefits for up to two years. For policies held outside superannuation you can generally opt for benefits to be paid until age 65.

For TPD cover, a key difference is the way the insurer assesses your disability if you need to claim. Inside superannuation, your disability is generally assessed against your ability to work in “any occupation” you are qualified and/or suitable for, or that you can be retrained to do. By contrast, policies held outside super can be assessed against your ability to keep doing your “own occupation”.

Having an “own occupation” definition makes it more likely you’ll receive a benefit because it takes into account the demands and rigours of your specific role.

“Many private clients are in senior positions,” Culver says. “You want your insurance policy to recognise the years of experience and specialisation that have gone into your career, because a change in role could make a significant difference to your earning potential.”

The pros and cons of insurance in super are an important consideration for people who have commenced a self-managed super fund, bearing in mind you may be leaving behind employer-sponsored insurance when you rollover you benefits. It is important that insurances within super are not cancelled until new cover is in place.

For income protection, policies inside super can generally only pay benefits for up to two years. For policies held outside superannuation you can generally opt for benefits to be paid until age 65.

3. Not protecting the homemaker

Life insurance strategies often focus only on the main breadwinner. But the financial impact on a family of a homemaker becoming disabled can be just as significant, particularly when they are the primary carer of children or elderly relatives.

Having trauma and TPD cover for the homemaker is not only helpful for covering medical expenses, it can replace the financial contribution of the main breadwinner if they need to stop working.

“If your partner became seriously ill, most people would want the flexibility to take a year off work to look after them,” Culver says. “A way to do that is to insure the non-working spouse, so their insurance benefit can help replace the working spouse’s income.”

4. Tailored protection for your legacy

While self-insurance may be the ultimate goal for many high-net-worth individuals, most people could benefit from personalised advice about their circumstances.

When you’re talking about getting the right insurance for you there are two key considerations: you need to have the right level of insurance for your lifestyle, and you need to have the right types of insurance for your specific risks. The more tailored your cover the better protected you will be.

ANZ Contributing Author


To discuss what this insight could mean for you, talk to your ANZ Private Banker directly, or contact us below.

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1. NSW Trustee and Guardian, The Superannuation Complaints Tribunal Annual Report 2013/14

2. Source: Australian Taxation Office -

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