Boomers burning up cash on cover

OLDER Australians are wasting tens of millions of dollars a year on life insurance they don’t need.

Rises in premiums in the past decade – particularly in superannuation funds – have increased wastage as preretirees pay premiums with money they could be saving.

Baby Boomers are most at risk of spending on unnecessary insurance because many no longer have dependent children or a mortgage, and their nest eggs are large enough to cover them financially.

Australians paid $15.9 billion for life insurance policies last financial year and SuperRatings chairman Jeff Bresnahan estimated 90 per cent of people with super were paying for life insurance within it.

“Unless they have actively opted out – which very few people have because they’re unaware or couldn’t be bothered – nearly everyone is paying for this insurance,” he said.

“In a lot of cases, people are paying for insurance that they quite often don’t need.”

Typical life insurance premiums in super had jumped from about $100 a year in the early 2000s to $400 to $800 today, Mr Bresnahan said.

“That’s too high for people who haven’t chosen that option,” he said.

The types of insurance held in super funds are term life cover (for death), total and permanent disability, and income protection insurance.

Wotherspoon Wealth director and principal adviser Simon Wotherspoon said some people wanted to keep insurance because it might give their family a financial windfall, while advisers often didn’t recommend a cutback because they would feel guilty if there was a claim or it could lower their commissions.

“But insurance is to manage risk, not to get a windfall,” he said.