Did a financial advisor set up your insurance? What you need to know

The personal insurance cover many Australians depend on

Being adequately insured matters. If things go wrong, the right cover can protect your income, your family, and your future.

The main types of personal insurance most Australians rely on include:

• life insurance: a lump sum to support your family and dependants
• income protection: a monthly benefit while you're unable to do your usual job due to injury or illness. Policies generally cover up to 70% of your income at the time of claim, depending on the policy and when it was issued
• TPD (Total and Permanent Disability): a lump sum if you're permanently unable to return to work that you're suited for by education, training, or experience
• trauma benefits: a lump sum if you’re diagnosed with a specific serious medical condition, such as a stroke, multiple sclerosis or heart attack

Your insurance should change as your life changes

Your insurance needs don’t stay the same forever. Pay rises, career changes, starting a family or buying a home can all affect how much cover you need.

If a financial adviser arranged your insurance, it’s reasonable to expect they would ensure your cover continues to reflect your current income, lifestyle and expenses, not just what applied when the policy was first taken out.

The risk of being underinsured

Many Australians only discover they are underinsured at the worst possible time: when they need to make a claim.

Under the Corporations Act, financial advisers who charge ongoing fees must

• provide clients with an annual fee disclosure statement
• deliver the services they are being paid for, including keeping their clients’ cover under review

The corporate regulator has made it clear that simply offering a review is not enough. If a review is not actually conducted, this may fall short of an adviser’s obligations.

Failing to properly review insurance can leave people significantly out of pocket.

For example:

If you receive a pay rise but your financial advisor does not increase your income protection cover, your payments may no longer reflect your real earnings.

If your income protection payments remain at $3,500 per month, while your income has increased to $5,000 a month. That shortfall can make a serious difference if you need to make a claim.

Another common example is starting a family or buying a house without your adviser increasing your life insurance accordingly. If a claim is later made, inadequate cover can place significant financial pressure on families already dealing with loss or illness.

How to reduce your risk of being underinsured

When engaging a financial adviser for insurance purposes, ask upfront:

• whether they will conduct regular reviews
• how they will ensure your cover keeps pace with changes in your life

If you later discover you are underinsured after relying on advice from a financial adviser, you could be entitled to compensation. Maurice Blackburn may be able to help.

Michael's* story

While organising a home loan with a bank, Michael, a construction worker, was referred to the bank's internal financial adviser to review his superannuation and insurance needs.

Michael already had default insurance through his super fund. Given his income and financial commitments, this cover was inadequate.

The adviser recommended income protection cover of $3,500 per month, which was already less than 70% of Michael's income at the time. After receiving a pay rise, Michael notified the bank, and the adviser increased his cover to $4,200 a month. This was still less than 70% of his new income.

A year later, Michael suffered an injury that prevented him from working.

Only then did he realise he was significantly underinsured, despite having trusted a qualified adviser to protect him.

Maurice Blackburn brought a claim against the bank for the conduct of its financial adviser, seeking compensation for the income protection cover Michael should have held, both past and future.

*Not his real name.

If you’re concerned your insurance may not reflect your circumstances, or you’ve suffered a loss due to inadequate cover, contact us on 1800 111 222 to find out how we can help you recover your losses.