New research commissioned by the Financial Services Council (FSC) has revealed the high number of New Zealanders that are underinsured when it comes to their lives, their incomes or suffering a major illness.
The third and final part in the FSC’s research series on New Zealanders’ attitudes to financial risk; ‘Gambling on Life’ focuses on the life insurance gap to understand the reasons behind underinsurance and the potential risks that some kiwis expose themselves to.
“Gambling on Life found that while many New Zealanders are aware of the importance of types of life insurance, this isn’t reflected in adequate levels of cover for themselves,” said Richard Klipin, CEO of the Financial Services Council.
The study looked at the three main types of life insurance available in New Zealand; life insurance, income protection/mortgage repayment insurance and critical illness insurance.
“While 54% of those surveyed agree that it is important to have the right amount of insurance to cover risks including illness, death and job loss; estimates of underinsurance are much higher,” continued Klipin.
Critical illness showed the highest level of underinsurance with only an estimated 9% of Kiwis being sufficiently insured, followed by 11% who had adequate income protection/mortgage repayment insurance and 29% with adequate life insurance.
“It is important to remember that not all Kiwis need these types of insurance, for example retirees are less likely to need income protection if they no longer work and have paid down their mortgage.
“For others, the research highlights some of the reasons for underinsurance, which includes affordability, priority, trust, self-insurance and complexity.
“The story is similar internationally, with most countries showing significant insurance gaps and challenges such as the demand on Government support outpacing supply, behavioural barriers to insurance and consumers underestimating the likelihood of things going wrong.”
However, for those New Zealanders that are insured, latest figures show that consumers are being paid out more claims, raising from $1.15bn in 2017 to $1.5bn in 2019, and there are 3.93 million insurance contracts in place (as of 30 September 2019).
“As insurers continue to undergo a sea change in culture and conduct, the industry is facing into the challenges highlighted by this series of research to improve customer outcomes and to educate and inform.
“Insurance has a key role to play in modern life and the sector continues to help Kiwis strike the right balance should the unthinkable happen,” concluded Klipin.
The FSC has come up with five top tips to check if you’re underinsured:
• Consider how you would cover costs if you were to lose your job, became seriously ill or, in the worst case to provide for your family in the case of death;
• Review your insurance cover regularly – as life changes, so will your insurance needs;
• Review your debt and savings and try to keep some savings aside for a rainy day;
• Speak to your provider or an adviser and get a holistic view of your current and future financial needs;
• Take action now – don’t leave it until it is too late.
The full report, ‘Gambling on Life – The Problem of Underinsurance’, can be found here.