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News
Higher Levels of Debt Put Aussie Families at Greater Risk
MEDIA RELEASE
HIGHER LEVELS
OF DEBT PUT AUSSIE FAMILIES AT GREATER RISK
Sydney: 1 July 2010 - With average household debt
in Australia now equal to one and a half times after-tax income, Australian
families are at greater risk than ever before, prompting a call from the
Association of Financial Advisers (AFA) for the Government to seriously engage
with consumers on the issue of managing personal risk and protecting their
families before banning commissions on life insurance.
AFA
National President, Dr Jim Taggart, OAM said that recently-released statistics
around the level of household debt in Australia highlight the fact that without
adequate life insurance, most families would be unable to continue to enjoy
their present lifestyle if a main income earner were to die, fall ill or become
incapacitated.
"We
now have the world's highest ratio of household debt to household income," Dr
Taggart said. "The average mortgage is around $283,000 and the average credit
card debt is about $3,240 - that's a lot of debt to service if you are only
earning the national average of just under $65,000 per annum, even if your
partner is also working."
However,
Dr Taggart said the high level of household debt is not necessarily a problem
if families keep earning enough income to service it.
"Unfortunately,
what often happens when disaster strikes a main income earner is that the
family can't service that debt, because they either don't have insurance or
their level of insurance is woefully inadequate."
An
analysis by IFSA and KPMG of life insurance lump sum claims paid, released in
December 2009 and covering the years 2004-06, revealed that the average claim
was only $132,537 - not enough to cover the average level of household debt.
Dr
Taggart said families who can't service their own debt not only risk losing
their homes, but ultimately place a burden on the public purse.
"An un-insured or under-insured population has
the potential to put a greater strain on our social security system," Dr
Taggart said, "a system which is already in serious danger of buckling as our
population ages."
A 2005
study by Rice Warner Actuaries estimated that the additional social security
payments arising from deaths of parents with limited insurance was in the order
of $250 million per year, not including other costs to government revenue such
as housing and the loss of income tax revenue.
"One
of the lessons we learned from the global financial crisis was the importance
of managing, mitigating and transferring risk," Dr Taggart said. "What that
means for everyday Australians is having appropriate levels of protection in
place so that the lifestyles their families currently enjoy are not at risk in
the event death, illness or injury."
Dr
Taggart said banning commissions on life insurance presents a serious risk the
Australian Government cannot afford to take without proper consultation.
"We
urge Canberra to take a long hard look at the statistics around life insurance
and seriously consider the impact of introducing any measures that are likely
to discourage Australians from taking out insurance that protects them against
the financial impact of death and disaster," he said.
AFA INSURANCE FACT SHEET
Household debt
National
average mortgage in Australia
- $283,000[i]
Monthly
repayments on average mortgage - $2,062[ii]
Life insurance cover within super
is on average only 20% of what is required according Rice Warner Actuaries
Only 4% of Australian families
with dependent children have adequate levels of insurance cover, meaning
Australian families are critically underinsured by $1.37 trillion,
according to research commissioned by IFSA in 2005
...Ends...
[i] Australian Bureau of
Statistics - owner-occupied at December 2009 (released February 2010)
[ii] Owner-occupied $283,000
mortgage @ 7.34% over 25 years
[iii] Reserve Bank of
Australia - $3,243.92 at March 2010
[iv] Australian Bureau of
Statistics - first quarter 2010
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