According to the 2016 Income Protection Gap report, Australians are considered underinsured, financially illiterate, over-confident and unrealistic with regards to income protection costs and government support.
They are also poor savers and the least interested in having income protection.
The survey – conducted by Zurich in partnership with Oxford University – found just 27 per cent of Australians have insurance against a serious illness or disability and 25 per cent are insured against premature death.
The lowest scoring country was Brazil where 22 per cent of people have insurance against a serious illness or disability and 19 per cent are insured for premature death.
The most insured country was Hong Kong, with 62 per cent of citizens having insurance against a serious illness or disability and 48 per cent being insured against premature death.
The report assessed each individual’s perception of the risk of losing income due to a disability and found that while Australians have an extremely ‘bullet proof’ attitude, nearly half of all Aussies surveyed have experienced income loss in their working life due to a serious illness.
At the same time, 29 per cent of Australians said they had less than one month’s savings cover to use in case of a serious illness or disability, while 65 per cent had less than six months.
Australia is also one of the lowest scoring countries in financial literacy around insurance, with just 19 per cent saying they had ‘good to very good knowledge’ of disability insurance.
The most financially literate country was Malaysia, with 59 per cent of Malaysian respondents saying they had ‘good to very good knowledge’ of disability insurance.
Zurich Australia’s chief executive of life and investments Tim Bailey said financial advisers are key to improving financial literacy among Australians.
“Financial advisers have got a critical role to play as insurers but there also needs to be a broader involvement from other key industry parties that helps us to move forward from a financial literacy point,” Mr Bailey said.
He said insurers can also address this by making changes to costs and covers.
“Cost is an important driver and on that front, efficiency is an angle. What can we do as insurers to reduce cost to serve and how can we support advisers to reduce cost to serve?
“How do we, as an industry, ensure that we can offer simpler covers which are easier to understand and maybe less expensive for consumers?” Mr Bailey said.
“In regards to improving literacy, that may well involve targeting the younger audience through more contemporary channels and again, simpler products have a role to play.”
The 2015 Income Protection Gap report surveyed 11,000 people in 11 countries.
And the LIF will make this worse with less advised insurance being provided.