Most people still lack enough life insurance to cover their needs, according to Rice Warner’s latest Underinsurance in Australia report.

The median level of cover meets only 61% of a family’s basic needs – defined as the minimum amount required to pay all non-mortgage debt while sustaining living standards until age 65 or until children reach age 21.

The report shows the median sum covers only 37% of income replacement required to maintain living standards until 65.

Median levels of total and permanent disability cover and income protection cover meet only 13% and 16% of their respective needs.

The underinsurance gap for parents with younger children is even greater, with the higher-earning partner needing 9-12 years of basic life cover to maintain their lifestyle.

Adequate income protection for such a family equates to 17-21 years of income for the highest-earning partner.

However, higher levels of default cover in superannuation funds means low-income earners have a narrower insurance shortfall.

The gap varies markedly depending on the composition of families, the report says.

“The level of default life cover held by young single members is likely to be higher than their needs, given that most have no children. In contrast, changing family formation patterns and higher debt levels at older ages means default cover is often inadequate for older members.”

The report says super funds face challenges in providing adequate cover for members due to these varying circumstances, which include marital status, the number of independent children and financial circumstances.

“This is challenging given the lack of detail about member family characteristics typically recorded on fund databases. Super funds should encourage members to report life events and whether they have dependent children.

“This information would assist funds to better align default cover to needs.”