New Zealanders are under-insured by $650 billion, a two-year research project has found.
And over the past five years, one in seven households has experienced a serious illness resulting in an inability to work for three months or more.
But a shareholder advocate says the $650 billion figure seems excessive because most people do not need all types of insurance.
The project, commissioned by the Financial Services Council, which represents investment and life insurance companies, is the first of its kind in the country. Data compiled by ACNielsen was analysed by Massey University researchers.
A senior lecturer at the university's business school and the country's only insurance academic, Dr Michael Naylor, said the research found insurance cover was sporadic.
"People who were married with children who need insurance weren't covered, but then older people who don't really need it were."
Dr Naylor said insurance coverage was not as low as the industry expected - most people with children at least had life insurance. He believed this was because it usually came as a condition of getting a mortgage.
The research found that each year the primary income earner in 14,980 households will fall seriously ill and be unable to work for six months or more - 288 households a week fall into the gap.
Only 20 per cent of households would cope for more than 12 months with paying their household expenses and maintaining their lifestyle if a serious illness meant the primary income earner being unable to work, the research said.
However, 55 per cent of households would be unable to pay all their expenses and maintain their lifestyle within a month after sick leave and annual leave ran out.
Massey University's report said common reasons for not being insured were believing the Government would help, lack of trust in insurance companies and the difficulty people had facing up to the idea of death or permanent disability.
Also, the prospective policyholder was being asked to pay money for an intangible and uncertain future benefit, when that money could be used in ways that could have clear immediate benefits.
Bruce Sheppard, an accountant and shareholder advocate, said the only form of insurance that was essential was income protection.
People needed life insurance only if they had debt or dependants, fire and theft was "quite nice to have" while health insurance was mostly completely unnecessary.
"The rich should be self-insuring, the poor can't afford it and that leaves the middle who should get income continuance until they can afford assets so they can self-insure.
"So to me that $650 billion figure sounds grossly overstated."
Peter Neilson, chief executive of the Financial Services Council, said the research painted a picture of serious financial risk for people should an income earner die or have their income disrupted through illnesses such as cancer, heart attacks and strokes.
The research commissioned from ACNielsen involved 2000 respondents in an online survey.Massey University then quantified the extent of underinsurance and the national cost of underinsurance to the Government.
$351.8b permanent disability
$2.97b income protection (per month)
- estimates from Massey University