Research commissioned by ALI Group found that 64 per cent of respondents had not seen an adviser to form a plan to cover their mortgage should they be unable work due to illness or redundancy.
ALI Group chief executive Huy Truong said many mortgage holders do not have a plan for such events.
“Serious illness or redundancy can happen at any time and many people don’t realise that their superannuation-held life insurance does not adequately protect their income in the case of illness or redundancy,” Mr Truong said in a statement.
“You may only receive $100,000 or $200,000 in cover from your superannuation and while this might seem like a lot on paper, the reality is that if you are a home owner with a family, you’ll actually need cover in the $500,000-$1 million-plus price bracket.”
The survey revealed that only 33 per cent of Australians said they would fall back on an insurance policy if a critical illness prevented them working or if they were made redundant at work, while 31 per cent would look to group insurance.
Thirty per cent of respondents said they had no form of insurance whatsoever to cover their income in the event of critical illness or redundancy.
Thirty per cent of respondents did not have a life insurance policy. Of those respondents, 41 per cent believed they didn’t need the cover, while 27 per cent thought it was too expensive.
As a professional risk adviser for 30 years I can readily agree with Mr Truong’s comments. But having obtained his ALI’s PDS and reviewed it thoroughly, for the majority of potential loan acquirers it is a ‘poor man’s substitute’ for genuine financial risk protection. Whilst ALI offers the option to complete a full personal statement, I hazard to guess that few people end up doing so. Just why does the Trauma cover have to be 30% of the life cover? What real benefit is 3 x a MAXIMUM $2,500 a month [$7,500 in total] redundancy benefit to people borrowing the average loan amount in 2017? Why does the redundancy benefit auto cancel after a set number of years? Is a person’s job really more secured the older they get? Where is the income Protection and TPD benefit if they’re unable to work due to an illness or injury? Clearly our industry needs to lift its game to deliver ‘complete’ protection solutions to all Aussie borrowers – not leaving it to these pseudo protection products that you could drive a semi-trailer through the policy conditions.