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Industry Insight
5 min read
Why life and disability insurance is key to protecting families from 'health poverty'
Poverty is not just a financial measure, it can also affect health. But life and disability insurance can help manage the risks.
40%+
of Australians report health levels so low they are classified as living in "health poverty"
$1.8T
the estimated underinsurance gap across Australia as of 2017, and it has grown since
−17%
decline in total death cover sum insured over the two years to 2020
More than 40% of Australians report such low levels of physical and mental wellbeing that they are defined as living in 'health poverty', according to research by the ARC Centre of Excellence in Population Ageing Research (CEPAR). The comprehensive analysis assessed more than 30,000 Australians' views of their health across physical function, role function, social function, pain, mental health, and vitality.
The findings are particularly significant given that life and disability insurance levels across Australia are continuing to decline, leaving millions of families exposed to financial risk in the event of illness, injury, or death.
"Our investigations of what aspects of health were contributing to health poverty suggests lack of role functioning and vitality were the most important elements, they account for much of the change over time and the differences between groups."
— ARC Centre of Excellence in Population Ageing Research (CEPAR)
Who is most at risk?
The research found specific groups were disproportionately affected by health poverty, with the gap widening significantly over the past two decades.
WOMEN
Health poverty among women rose from 44% in 2001 to a record high of 46% in 2018 — consistently higher than men, and the gap widened significantly by 2010 (40% women vs 33% men).
Indigenous Australians suffered extreme rates of health poverty of more than 60% by 2018, with poor mental health playing a significant part in driving the gap compared to non-Indigenous Australians.
INDIGENOUS AUSTRALIANS
The underinsurance problem
Despite these risks, Australians are significantly underinsured. Actuarial firm Rice Warner estimated Australians were underinsured by $1.8 trillion in 2017, and the gap has widened. Rice Warner's 2020 analysis revealed that total death cover has decreased by 17% and total permanent disability (TPD) cover by 19% over the previous two years alone.
Regional differences also matter
South Australia recorded the highest levels of health poverty of any state, while the ACT recorded the lowest. People in rural and regional areas were also likely to experience slightly higher levels of health poverty, a finding that underlines the importance of access to financial and health support services outside major cities.
Key takeaways for families
Over 40% of Australians are classified as living in health poverty, many without adequate insurance protection
Women and Indigenous Australians face disproportionately higher rates of health poverty
Australia is underinsured by an estimated $1.8 trillion, and the gap is growing, not shrinking
Life and TPD insurance needs vary significantly by age, younger parents with dependants need substantially more cover
Reviewing your insurance coverage is one of the most important financial steps a family can take
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