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Underinsurance expected to cost $1.3 billion over 10 years

One in five Australian families will suffer the death of a parent or a serious accident or illness that renders a parent unable to work, according to new Lifewise/NATSEM research.

The research, titled the Lifewise/NATSEM Underinsurance Report, found the underinsurance of parents with dependent children and a mortgage will cost the Australian Government an estimated $1.3 billion in additional social security payments over the next decade.

The research was completed in February 2010 by the National Centre for Social and Economic Modelling (NATSEM) at the University of Canberra for Lifewise - a public awareness initiative aimed at encouraging Australians to protect themselves from financial hardship that can result from accident, sickness or death.

The research models the number of Australian families expected to experience an insurable event during their working lives, the cost of this underinsurance to government, and the financial impact of various insurable scenarios on a typical family.

The report found over one million working age parents will die, or become seriously ill or injured and be unable to work at some stage during their career.

It also revealed that based on current average levels of insurance, the typical Australian family's weekly income will be cut by half to about $600 where a main breadwinner becomes temporarily ill or injured and can't work, or where the secondary income earner becomes temporarily or permanently disabled. The family's financial situation following the event will remain broadly the same over a one-, five- and ten-year period.

When recommended levels of income protection insurance are in place, the policy will in most cases replace between 80 per cent and 100 per cent of the family's income in the short and longer term (depending on the duration of the policy). With adequate life insurance, the remaning partner can also repay existing mortgage debt and invest what remains to generate an income that replaces income between 80 and 100 percent of the original.

Article from Financial Planning Magazine April 2010


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