Why life and disability insurance is key to protecting families from ‘health poverty’
Poverty is not just a financial measure – it can also affect health. But life insurance can help manage the risks.
More than 40% of Australians report such low levels of physical and mental wellbeing that they are defined as living in ‘health poverty’, according to new research1 . It suggests many Australians are unaware of the risks they face given life and disability insurance levels continue to decline. The comprehensive analysis by the ARC Centre of Excellence in Population Ageing Research (CEPAR) assessed more than 30,000 Australians’ views of their health across physical function, role function, social function, pain, mental health, and vitality. “Our investigations of what aspects of health were contributing to health poverty suggests lack of role functioning and vitality were the most important elements,” the report found. “They account for much of the change over time, the differences between groups, and the differences in trends between groups.” While there are measures of poverty across several aspects of life, there is no established measure of health poverty, according to the report. According to the CEPAR measure, the rate of health poverty fell between 2001 and 2009, but then quickly climbed again, in line with rising diabetes and drug-induced deaths.
Women and Indigenous Australians more at risk
The research found specific groups, including women and Indigenous Australians, were more at risk of health poverty. Around 44% of women suffered from health poverty in 2001 compared to 40% of men. The gap grew larger (33% for men and 40% for women) by 2010, with women’s health poverty continuing to get worse, reaching a record high of 46% in 2018. Indigenous Australians were also at risk, suffering extreme rates of health poverty of more than 60% by 2018.
“For Indigenous people, poor mental health also played a significant part in explaining higher rates of health poverty compared to non-Indigenous people. These findings should be explored further in future research.” While older Australians tend to have more health problems, the health poverty gap between older and younger people narrowed over the last two decades. Meanwhile, the research also found South Australia had the highest levels of health poverty while the Australian Capital Territory (ACT) had the lowest. People in rural areas were likely to experience slightly higher levels of health poverty. The report didn’t offer substantial reasons for the findings but suggested they may point the way to improve public policy to help at-risk groups.
Underinsurance and health poverty
The report shows many Australians are at risk of health poverty, yet actuarial firm Rice Warner (recently merged with PwC) estimated Australians were underinsured by $1.8 trillion in 20172 . And the gap has widened. Rice Warner’s 2020 analysis revealed that the total sum insured has decreased by 17% and 19% for death and TPD cover respectively over the previous two years. The table below estimates the actual average level of death and TPD insurance that 30 and 50-year-old parents need. (The amount is lower for older parents as they have less time until retirement, lower expected debt, higher super savings, and spend less time looking after children.)
