Superannuation funds will have to look at tailoring their life insurance offering rather than using a “one size fits all” approach, according to Rice Warner director Richard Weatherhead.

“Insurance needs vary depending on income, social security benefits, family status and the type of cover being offered by the fund,” he told a CommInsure event in Melbourne last week.

“It is not a ‘one size fits all’; we need to understand the individual’s circumstances to meet their needs.”

According to new research by Rice Warner, a couple aged under 40 with two children would need nine times their salary to be adequately covered for death.

This would drop to one times salary for a single person with no children under the age of 40.

Total and permanent disability (TPD) cover needs are much greater, Mr Weatherhead says.

The couple with two children would require 15 times income to be adequately covered while the single person with no children would require 24 times income.

The research found average default death cover would provide about 60% subsistence requirements for a couple with children.

But at 55, the cover for the same couple would only be about 20% of their needs.

“The belief that insurance will help the needs of the member as they get older is no longer true,” he said.

“With people having families later in life and working longer, insurance will no longer meet the needs of these people in the average group scheme.”

Mr Weatherhead says there is an opportunity for the industry to provide better death and TPD insurance for the over-40s in funds.

But the biggest opportunity for insurers is in income protection where the median level of cover is only 18% of needs.

“There is a significant opportunity in income protection insurance as it should be covering 85% of earnings,” he said.

“Current levels of default cover only meet the needs of the average member, so superannuation administrators need to engage the membership to see what their actual needs are.

Mr Weatherhead says default cover for members will now have to be tailored to meet the individual’s specific needs.

“Technology will revolutionise the way life insurance is distributed with superannuation funds,” he said. “It will make it possible to talk to every member and identify their particular insurance needs.”

He says surveys of fund members report they understand the underinsurance problem, but there has not been a call for action from them to deal with it.

“The future will be member engagement and giving intra-fund advice to tell the member what insurance cover they actually need.”