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Life Insurance – the real cost of care (and how much you should have)

Insurance is one of those things we’re grateful to have when we need it. We simply don’t like paying for it. It’s an expense we incur hoping to never benefit, making it a grudge purchase.

We know we need insurance, but we still ask, “do I need insurance?”. The right question should be “do I have the right level of cover for me and my family?”.

Many Australians have a default level of insurance through their super fund but this may be woefully inadequate should they or their family need to rely on it. A survey conducted by Real Insurance in 2017 found that 38% of families had no insurance and around a quarter were not confident their cover was sufficient.

This message was reinforced by Rice Warner Under-insurance in Australia 2015 report which found the median level of life cover met just 61% of basic needs and 37% of income replacement. Worse yet, the median level of income protection met only 16% of needs while the median level of total and permanent disability cover met just 13% of needs.

And the median statistic understates the under-insurance for young families.

“It won’t happen to me” and “I’ll get around to it” are perhaps the two great lines behind the procrastination to getting the right level of cover.

Statistically, however, no one can say “it won’t happen to me”. Zurich have released a white paper they commissioned into the cost of care. It is an evidence-based analysis on the average cost of care for different types of trauma and injury. The fact is, it could happen to you or someone close for whom you may need to provide care.

What are the odds?

Consider, in 2016/17 there were over 777,000 hospitalisations due to injury or poisoning. This year we can expect over 130,000 new diagnoses of cancer. Right now, over 600,000 Australians are living with coronary artery disease, 2 million with kidney disease and half the population will experience mental health challenges in their lifetime.

And advances in technology continue to extend our life expectancy, increasing the cost burden of treatment for all of us. In 2015/16, the total health expenditure in Australia was $170.4 billion of which $30 billion was covered by individuals (and their families and carers) – nearly twice the amount funded by private health insurers.

But what are the odds? Here are just a few numbers:

  • One in 3 Australian men and one in 4 Australian women will be diagnosed with some type of cancer before they turn 75;

  • There is a 1 in 11 likelihood men and a 1 in 15 likelihood women will develop bowel cancer by age 85 (most commonly developed in people over age 50);

  • There is one heart attack every 10 minutes and one heart attack related death every 66 minutes;

  • There are 96 stroke events every day in Australia, of which 29 are fatal. A third result in some degree of disability;

  • In 2015, there were an estimated 1.45 million Australians suffering chronic respiratory pulmonary disease (COPD) from which 19 people die each day;

  • The risk of suffering dementia over ones lifetime can be as high as 17%

  • 52% of traumatic brain injuries are attributable to car accidents

  • The main cause of traumatic spinal cord injury is simply falling (33%)

And the list of statistics goes on and on to cover more cancer, diabetes and kidney disease, musculoskeletal conditions and injury, vision and mental health.

What does it all cost?

It depends. Many of the numbers in the Zurich paper are referred to as average lifetime cost – the gap to be funded for an individual age 15 years and over for their lifetime. It also depends on what you end up suffering and if you have a recurrence (in the case of cancer).

The cost of care figures do not take into account ongoing personal care where required. This typically falls to family members and can be financially detrimental. For example, 46% of people with dementia receive informal (unpaid) assistance from a family member or close friend.

Taking a look at some specific examples: the average lifetime cost for prostate cancer is $36,800 with up to a 40% chance of recurrence. The average out of pocket for newly diagnosed patients was $11,077 but ranged from $250 to $30,000. Breast cancer was similar with an average lifetime cost of $36,040 with the chance of recurrence at up to 23% within 5 years (depending on initial treatment) but initial out of pocket expenses can be up to $17,200.

The most expensive of the cancers in the paper was head and neck cancers and thyroid cancer with an average lifetime cost of $95,460. These have a recurrence rate of 20-40% for the former and up to 30% for the latter.

The last note on cancer is this – if you require medication which is not subsidised by the Pharmaceutical Benefits Scheme (PBS), you may be out of pocket up to $5,000 per month.

Non-cancer illness can be far more variable. At the more expensive end of the scale is dementia with an average cost of $47,811 in the first year and $14,842 each year thereafter. Alongside this is Parkinsons disease with an average cost of $169,060 over 12 years.

What about Medicare and Private Health Cover?

We are a fortunate country to have Medicare which can cover hospital, medical and pharmaceutical benefits. Australians want more, however, and more than 11 million choose to supplement their healthcare funding with private hospital cover and around 13 million have private ancillary cover.

Even with Medicare and private cover working in conjunction, the individual is often left with a gap which is an out of pocket expense borne by the individual.

The gap can be quite significant and impact behaviour – one study found that 14% of adults don’t receive the care required due to cost and this number rises to 24% for those living with a chronic

health condition. Further research also suggests over 40% of individuals with depression or other mental health conditions skip treatment due to cost.

Indirect costs are borne directly by the individual. These can include time spent off work (and lost wages), time travelling to and from medical appointments and indirect costs borne by families and carers. 58% of primary carers of people with stroke and disability spend 40 hours or more per week in their caring role of which 31% report having difficulty meeting everyday living costs.

What should I do?

Review your lifestyle and financial obligations.

Ask yourself the right questions and you can take control of the decision-making process.

What would it mean for you and your family if something adverse were to happen to you? How much would your family need if you were to die? How much would you need to recover if you suffered a trauma? How much would you need if you suffered an injury or illness which meant you could never work again?

These questions are the emotional triggers that matter and to help you answer them, understanding the cost of care helps.

And of course, we recommend seeking advice.

Sovereign Wealth Partners can help you, your family and friends.

Contact us: Ph: (02) 8216 1777 E:

Disclosure Statement: This communication has been approved and issued by Sovereign Wealth Partners Pty Ltd ABN 18 607 071 367 Corporate Authorised Representative (No. 001233909) of Sovereign Capital Pty Ltd ABN 44 164 127 833, AFSL 456235.

General Advice Warning: Any advice included in this article and associated links is general in nature and does not take into account your objectives, financial situation or needs. If a product we recommend has a Product Disclosure Statement (PDS), you should read it before making a decision. Past performance is not a reliable indicator of future performance. We do not endorse any information from research providers that we provide to you, unless we specifically say so.

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