The rate of life underinsurance has reduced thanks to cover in super funds, but the problem is not going away, Rice Warner CEO Michael Rice says.

He says the gap creates opportunities for insurers through technological innovation, enhanced member engagement and further investment in group life by super funds.

“The bottom line is that Australia still has a large underinsurance problem,” he said.

“We first reported this issue in May 2005, and found couples in their mid-30s with young children needed at least 10 times their earnings as protection. Average wages were then $50,000, so a couple would have required life cover of about $500,000.”

Mr Rice says default cover in super was about $70,000 in 2005.

“Since then, default levels of cover have grown significantly and the gap for the typical young family has partly been closed,” he said.

“While the required life insurance is now about $680,000, the typical default cover is about $200,000, so the base cover has doubled to about 30% of their need.”

Rice Warner estimates the total cost of life underinsurance to the Federal Government is $57 million a year, with disability underinsurance estimated at $1.2 billion.

Income protection underinsurance is estimated at $260 million a year.

Mr Rice says mandatory super means life insurance is booming in Australia, with about 50% of the $14 billion annual premium now collected through super.