Navigating the Mortgage and Insurance Gap: A Guide for Central Coast Families

by LukeAdmin

By Simon Tarrant

In recent years, a concerning trend has emerged within family finances – the widening gap between rising mortgage values and the often–stagnant default insurance cover provided by superannuation funds, which in many cases is the family’s only source of wealth protection.

Growing financial responsibility, such as mortgages, marriage and children, means the financial impact of illness, injury or death poses significant financial risks for families, especially when your family is reliant on your income.

The rising tide of property prices (and mortgages)
Australia has witnessed a dramatic surge in property prices in recent years. Factors such as low–interest rates, increased demand, and limited housing supply have contributed to this trend. According to the CoreLogic Home Value Index, property prices have experienced double–digit growth in various cities across the country. While this may be beneficial for homeowners in terms of wealth accumulation, it also means that the average mortgage value has increased substantially with Australian Bureau Statistics (ABS) reporting in August 2023 that the average loan size for owner occupier dwellings in NSW has risen to $722,132.

Superannuation default insurance cover: falling behind
As property prices continue to surge, many Australians find themselves with mortgages that far exceed their life insurance coverage provided by their superannuation funds. This misalignment poses a major financial risk for families. In 2022 Deloitte Access Economics reported in their publication “The Future of Insurance through superannuation” that almost 10million Australians have at least one type of insurance (Life, Total Permanent Disability [TPD] or Income Protection) provided through superannuation, with an average sum insured for both life and TPD of around $136,000 and $4000 (per month) for income protection.

This insurance provides a safety net for individuals and their families in the event of unexpected circumstances such as disability or death. However, these default policies have not kept pace with the soaring cost of living currently being experienced throughout Australia.

Many Australians are unaware that the default life insurance offered by their superannuation fund may not be sufficient to cover their outstanding mortgage and ongoing livings expenses, creating a potentially perilous situation for families who rely on this insurance to safeguard their financial wellbeing.

The importance of adequate coverage
Insufficient life insurance coverage can have devastating consequences for families left with large outstanding mortgages among other financial commitments. In the event of a tragedy, loved ones may find themselves struggling to maintain their homes and meet their financial obligations. This can lead to forced sales, upheaval, and financial hardship at an already difficult time.

Things you need to consider when assessing your level of insurance cover include:

  • the elimination of your debt (mortgage, car loans or even credit cards)
  • provision for daily expenses for you and your family in the event you’re unable to provide income
  • education expenses
  • medical costs.

Closing the gap: steps toward adequate coverage

  1. Regular Reviews: It is imperative for individuals to regularly review their insurance policies and assess whether their insurance coverage aligns with their current financial situation.
  2. Consider additional coverage: in cases where your current insurance falls short, individuals should consider purchasing additional insurance coverage to bridge the gap. These policies can be tailored to meet specific needs and provide the necessary financial protection.
  3. Seek professional advice: Consulting with a financial adviser can provide invaluable insights and strategies into the most suitable and tax effective policies for an individual’s circumstances. Protecting your wealth in this stage of life is complex so it is crucial you speak with a financial adviser before committing to a decision.

Simon Tarrant (AR: 001270872) is a Private Client Adviser at Morgans Financial Limited (AFSL 235410 / ABN 49 010 669 726). Simon is passionate about creating quality financial strategies that are tailored and customised to a clients’ lifestyle, financial goals and risk profile.

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