Insurers see huge holes in safety net

Most families do not have sufficient life insurance cover to provide financial security in the event of the death of a parent - and the shortfall is growing as wages, house prices and overall indebtedness rise, a survey shows.

The survey of 477 people with dependent children, commissioned by AMP, found that only 55 per cent of families had life cover and only 31 per cent had cover equivalent to five years of the average wage - which the industry deems to be the minimum sufficient amount.

AMP life insurance general manager John McMurdo said many families were putting off taking out a policy, believing that it would be too costly.

And while most insured felt they had enough cover, only about a third would have long-term support beyond paying off immediate expenses, such as the mortgage on the family home.

New Zealanders' lack of adequate life cover has been flagged by insurers as a social problem and a growth opportunity since a study uncovered a life insurance shortfall in Australia of A$1.3 trillion ($1.45 trillion).

Investment, Savings and Insurance Association chief executive Vance Arkinstall said AMP's research had produced "worrying" results.

"The Australian and New Zealand results are consistent with our understanding of an under-insurance problem emerging in other countries including the UK, US and Germany."

Arkinstall said total New Zealand life insurance premiums increased by 7.6 per cent in the December 2005 year.

That figure appeared to fall well short of increases in inflation, population, wages, house prices and indebtedness.

"You could draw the conclusion that, in actual fact, the under-insurance problem is getting worse."

McMurdo said: "We're ploughing money into debt without thinking about the long-term consequences of not having the safety net which insurance provides."

Arkinstall said the responsibility for providing for under-insured families in the event of the death of the breadwinner fell to the taxpayer in the form of assistance through the welfare system.

He said the life insurance industry was becoming increasingly aware and concerned about the problem.

"It's a major challenge for life insurance companies and distributors, agents and brokers who are either failing to engage with a large part of the market or are simply not being successful in ensuring people are regularly reviewing their life insurance programme to make sure the cover they've got is keeping pace with their changing needs."