Consumers ignoring life insurance

Consumers are increasingly ignoring life insurance in the face of high costs and the belief that superannuation benefits will be enough to deal with future financial obligations, according to an IBISWorld report.

Factors such as the reduction in family sizes, lengthening of life expectancies, a perceived high cost of insurance, and the growth in superannuation savings have all contributed to a decrease in life insurance in the past decade, the report stated.

Rice Warner estimated that underinsurance costs taxpayers more than $250 million a year in additional social security payments as they have to support the beneficiaries of individuals who were underinsured, the report stated.

Life insurance purchased through superannuation funds accounted for about 90 per cent of industry demand but only 20 per cent of what is needed, the figures revealed.

An increase in superannuation membership would boost demand for life insurance but generally represented a sub-optimal outcome as individuals who gain life insurance through their superannuation fund tended to be underinsured, the report continued.

While the substantial flows of money into superannuation funds has provided some benefits to life insurers, such as through investment linked policies, the popularity of super has led to “super myopia”, where people think superannuation provides an adequate financial hedge against death or disablement, according to the report.

The market meltdown has created an opportunity for life insurers to capitalise on increased financial vulnerability, but insurers have to improve consumers’ knowledge and understanding of these products and continue to simplify them.

“Ultimately, IBISWorld anticipates life insurers will be successful in their awareness and education campaign and consumers will increase their life coverage. Much of this campaign will focus on the superannuation market,” the report concluded.