In the event of the untimely death of the main breadwinner, most Australian families will need almost $700,000 to fund a basic annual income of $30,0001 .
Many people are currently relying on the life insurance component of their superannuation fund to cover unexpected death. However, the average industry wide payout is only $110,000 from an industry superannuation fund2.
According to Aviva’s general manager group business development, Shaun Williams, relying on life insurance and income protection benefits included in most superannuation plans will leave families short-changed in the event of the death of the main breadwinner.
The majority of industry superannuation funds provide life insurance cover based on multiplying annual salary by one to two times, while most people really need to multiply their salary by 12 to 15 times to ensure an adequate annual income for their family.
"Many people need to complement the cover in their superannuation plan with an individually owned Life Insurance Policy," said Shaun.
A lump sum Life Insurance payment generally has to cover, firstly the family debts, including mortgage, loans and medical expenses. According to the Australian Bureau of Statistics, the average Australian household owes an average of $97,6503.
Secondly, it may become the main source of annual income for the whole family. The graph below shows the investment needed (in addition to the funds needed to pay off debts) to guarantee the income a family will need.
| Annual Income | Male aged 30 | Female aged 30 | Male aged 40 | Female aged 40 | Male aged 50 | Female aged 50 |
|---|---|---|---|---|---|---|
| $30,000 | $644,700 | $667,100 | $591,900 | $623,400 | $517,500 | $553,700 |
| $60,000 | $1,289,300 | $1,334,100 | $1,183,700 | $1,246,800 | $1,034,900 | $1,107,400 |
| $90,000 | $1,934,000 | $2,001,200 | $1,775,600 | $1,870,200 | $1,552,400 | $1,661,100 |
Assumptions: Annual income assumes a net rate of return of 7% per annum. This is based on the Australian Bond market average return of 12.4% which is averaged from 1982 – 2002. This is then expressed net of tax at 33% and of investment fees of 1.3%. Net annual income is indexed at three per cent per annum. Amounts rounded to nearest hundred dollars and the income is assumed to be paid monthly, Life expectancy rates are taken from the Australian Life Tables 95-97.
"As you can see from these figures you need a considerable amount of money to fund a family that has lost a major breadwinner," comments Shaun Williams, Aviva’s General Manager Group Business Development.
"Unfortunately relying on your industry super fund to look after your life insurance needs is just not realistic. It’s just not enough money when you look at today’s costs – especially housing which is by far a family’s largest expense," says Shaun.
Right now, the average size of a new home mortgage is $189,0004 , with monthly repayments of $12765.
"That’s 30% of an average family income6. Many would struggle to pay this if the income from the major breadwinner ceased suddenly," comments Shaun.
"Superannuation is still one of the best ways to fund your retirement but you just can’t rely on it to adequately protect your income stream during a time in your life when you should be working," says Shaun.
When looking at your family’s financial needs it’s important to look at all scenarios and unfortunately this includes the possibility of death or disability.
For assistance on creating a robust strategy, including both Superannuation and Life Insurance needs please see a financial adviser.
-ends-
1 Norwich Union Life Australia Limited, Protection sums insured guide, August 2003, Melbourne.
2 Boreham, T, Suicide payouts take a toll on funds, The Australian , April 2004, Melbourne.
3 Australian Bureau of Statistics, Australian National Accounts: financial accounts, March 2004, Canberra.
4 Australian Bureau of Statistics, House Finance for Owner Occupier, Australia, November 2003, Canberra.
5 Department of the Parliamentary Library, Research Note, Interest Rates, Home Loans and Repayments, November 2003, Canberra.
6 Department of the Parliamentary Library, Research Note, Interest Rates, Home Loans and Repayments, November 2003, Canberra.
For further information please contact:
Simon Morgan
(03) 9829 8892
0407 966 632
Notes to editors:
- Aviva Australia is a group of two specialist financial services companies: Navigator and Norwich Union Life Australia Ltd. Portfolio Partners, the Australian funds management arm of Aviva plc, is a sister company. Through these companies we provide products and services in the areas of wealth creation, wealth management and wealth protection for more than 300,000 customers throughout Australia
- Globally, Aviva Australia is part of Aviva plc, the world’s seventh largest insurance group, the largest insurer in the UK and one of the top five life companies in Europe. Aviva was formed in May 2000 through the global merger of CGU plc and Norwich Union plc
- Aviva is a leading provider of life and pensions products to Europe and has substantial businesses elsewhere around the world. Its main activities are long-term savings, fund management and general insurance. It has premium income and investment sales from continuing operations of A$66.08 billion, and more than A$472 billion of assets under management (as at 1 January 2004). The group has more than 59,000 employees and 25 million customers worldwide.
- The information in this document reflects Norwich Union Life Australia Limited's (NULAL) and NULIS Nominees (Australia) Limited's ('NULIS') understanding of existing legislation, proposed legislation, rulings etc as at the date of issue. In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, this is not guaranteed in any way. The information is not, nor is it intended to be, comprehensive or a substitute for professional advice on specific circumstances. The securities advice or information given in this document is of a general nature and has not taken into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision on the basis of the advice above, a prospective investor needs to consider, with or without the assistance of a professional adviser whether the advice is appropriate in the light of their particular investment needs, objectives and financial circumstances
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