Why isn’t life insurance considered a priority to some when it comes to splashing the cash? It certainly may not be something you look forward to investing your hard-earned money in - maybe even more so if you’re in your 20s or early 30s as there can be lots more attractive, short-term demands on your cash - like travel, or a house deposit.
But with underinsurance a problem in Australia*, we asked some millennials what they are doing about insurances like life, total and permanent disablement (TPD), income protection and trauma?
The parental solution
26-year-old promotions manager Natalie hasn’t invested in life insurance or income protection for one simple reason. “If something happened to me my parents would look after me. When I start a family, get married and stuff - when I’m completely independent - I’ll probably invest in insurance of that kind. At the moment I still feel like I belong in my parents’ family unit,” says Natalie.
Likewise, 30-year-old Joe, a primary school teacher, says he’s thought about life insurance and income protection for the future, but at the moment it’s not something he needs. “I don’t have anyone dependent on my income at the moment except myself,” he says. “I don’t have kids or a business that I need money there to keep running. I’ve got support networks that I think would look after me if I fell into that situation... I’d just move back home to the country.”
Westpac Banking Corporation’s Senior Financial Planner Diana Saad hears lots of similar stories when she advises her millennial clients. “They think it’s an unnecessary cost,” she says. “They don’t have dependents a lot of the time, or they’re still living at home and they believe their parents would support them if it came to that.”
But is it really fair to rely on your parents? Diana says even if your parents are well off, they’re still going to retire one day. “If something happens to you, of course your parents would always be there for you, like most parents would… But if that impinges on their retirement and they have to go back into the workforce or sacrifice their lifestyle, how would you feel about that?”
Time to grow the responsibility gene
In some cases, when someone has a child, or a friend gets sick - something that’s a bit too close to home - that Diana sees some under 35s finally getting responsible and looking at their insurances.
A good example is Sam, a 23-year-old currently undertaking a graduate program and looking at increase his TPD cover. “One of my best friends has just had a long string of health issues and so she’s been in and out of the hospital for the last six or seven years. That’s freaked me out a bit - seeing the amount of financial hardship that’s been put on her and her family.”
“It’s made me think, well I’m not invincible. What can I do to protect myself from these sort of issues?” Sam says.
Yet, even people who have already started their own family and have dependents, are sometimes still reluctant to take up life and other insurances. Deepa is a 32-year-old marketing manager with a husband and two small kids, and not much spare time or cash.
“There’s just not enough to go around to be honest. I’ve got to be clear on the priorities, things like health, home and contents, car - there are clear benefits to that while life insurance is a bit of a nice-to-have,” Deepa says.
Diana can empathise. “Let’s be real, we do live in a world where things are expensive, the cost of living’s going up but you can still take out insurances and you can look at ways of making it cash flow-friendly. You can look at taking cover inside super for example... until your cash flow gets better and then you could revisit your strategy.”
Deepa’s not alone in putting health, car and home insurance before life. In the BT Australian Financial Health Report 2014, home protection remains the number one priority, while “less than half the population have any form of personal cover (life, TPD, income, trauma)”.2
Have life cover through super?
Many super funds have a default level of life insurance, income protection and TPD. But is it enough?
Matt, a 30-year-old industrial relations adviser, has life insurance and income protection in his super, but admits it probably wouldn’t be enough to cover him if he had an injury. “I was thinking about upping it but I just haven’t got round to it yet,” he says. “If something did happen I’d probably be in a vulnerable position. I have a partner who works, so I’d probably mainly be relying on my partner. It would be stressful for her.”
Diana agrees that the default insurance you have in your super may not always be enough. “It could be very limited in terms of the comprehensiveness of cover and the amount insured, and it might be difficult to claim for disability due to limited definitions. And when you do claim there are potentially tax implications inside super, depending on who’s receiving the life insurance."
And as to your cover, “the average super fund insurance might have default cover” Diana says. “but that may not be enough, depending on your individual circumstances. But what if you get sick and are unable to earn an income to support yourself or your family, will the policy provided by your super fund provide cover in that instance?”
Model millennial citizens
One person who’s already caught the responsibility bug is Craig. He’s 30 and manages a cotton farm in Moree, New South Wales. Though he has the default life insurance that comes with his super, he increased his income protection insurance not long ago. Says Craig, “Income protection is important to look after my partner if something happens to me… we’re pretty stretched out with mortgages at the moment.”
Jen, a 35-year-old change management consultant, is another model millennial when it comes to insurance. She’s originally Canadian but has been living in Australia for 14 years, and doesn’t have family around. “Life came default with my super but I upped my TPD threshold so I pay a monthly fee to them through the plan. I guess as a single woman, total and permanent disability insurance is important to me because I don’t have a partner that could pick up the slack if I injure myself.”
But the ultimate poster boy for insurance forethought is Jason, who’s 30 and works as a business manager in finance. “At a younger age I was more inclined to think I was invincible,” Jason says. “I thought it was a waste of money, paying for things in case something happened.
"I guess maturity set in and at 24 I signed up for the full set of insurances as I had learned from a variety of experiences that it usually works out cheaper or beneficial to be pro-active rather than reactive.”
That turned out to be a prophetic move. At 25 Jason suffered from an Ischemic stroke and couldn’t work or go to uni. Income protection covered him during the period and he also received a payout to compensate the stroke under a trauma claim.
“It’s unusual for someone to have income protection at 24,” Diana says. “Jason was very smart. It can be a good idea for people to look at these insurances as soon as possible. With some insurance providers, including BT, you can start taking out insurance from the age of 16 onwards.”
Sounds like a plan.
1. The Australian Financial Health Report 2014, Francoise Coirier, Andrew Kelly, page 11
2. The Australian Financial Health Report 2014, Francoise Coirier, Andrew Kelly, page 15
The information is current as at 15/12/2015.
This article is one of a series, during which 12 people aged between 18-35 during the period April 2015 - October 2015 were asked about their attitudes towards financial matters. The people referred to in this article are real people who provided responses to the questions asked. The responses referred to in this article are an extract from the full response which has been used for illustrative purposes only.They have provided permission for their names and details to be reproduced.
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