The Hidden Risk in Your Retirement Plan – Underinsurance in 2026

By Tony Densley

For many Australians, life insurance and income protection are the safety nets that ensure our families won’t face financial hardship if the worst happens.

But the reality is sobering: recent research from the Council of Australian Life Insurers (CALI) shows two‑thirds of people worry that cost‑of‑living pressures will affect their ability to afford cover, and about 3.4 million Australians are underinsured.

Worse, 92 % fear rising costs will force them to cancel their policies.

Here’s what that means, and how to fix it.

The problem: an invisible gap

Underinsurance isn’t just a statistic; it’s a hidden crisis.

More than one‑third of working Australians have no life cover at all, and 20 % of those without cover are people who let their policies lapse.

Older Australians (aged 55–64) are the least likely to hold a policy, while younger workers know they need insurance but struggle with cost and complexity.

Across all age groups, 62 % say they would consider cancelling cover if affordability becomes an issue.

Why underinsurance matters

Imagine you couldn’t work for six months due to illness or injury, or worse, what would happen to your mortgage, your children’s education, or your partner’s income?

Life insurance and income protection provide peace of mind that your loved ones can grieve and recover without financial distress. Without adequate cover, unexpected events can derail your retirement plans, forcing you to sell assets or rely on the Age Pension.

The emotional toll of a health crisis is hard enough; financial security means one less thing to worry about.

What drives the gap

High premiums and cost‑of‑living pressures top the list.

A blind trust in default superannuation policies plays a part too, group insurance through your super often provides only basic cover, which may not be enough. Rising expenses force many to prioritise groceries or the mortgage over protection, making insurance feel discretionary.

Complexity doesn’t help: policies can be hard to understand, and many people assume they don’t need extra cover.

Twenty‑per‑cent of those without insurance are lapsed customers, meaning they once had protection but dropped it as costs rose.

Closing the gap in 2026

• Review your cover: Check how much life and income protection you have. Does it cover your debts, living costs and future plans if you couldn’t earn?

• Know the features: Many policies include trauma benefits or mental health support, yet 68 % of Australians don’t realise life insurance can include mental health cover.

• Compare policies: Don’t assume your super’s default cover is enough. Stand‑alone policies may offer higher benefits, and adding cover through super can be tax‑effective.

• Adjust, don’t cancel: If premiums are a stretch, talk to your insurer about reducing the benefit amount or increasing the waiting period to make cover affordable.

• Get advice: A professional can help you calculate the right level of cover, ensure your beneficiaries are updated and integrate insurance into your broader retirement plan..

Lessons from real life

Sarah, 42, thought her super’s default insurance would protect her family, until a friend’s unexpected passing made her check. The payout would barely clear her mortgage. For just a few dollars a week, she increased her life cover and added income protection, securing her children’s future.

Daniel, 60, let his policy lapse to save money. Three years later, cancer treatment left him struggling to cover medical costs.

Their stories show why underinsurance isn’t worth the risk.

Beyond insurance, your broader safety net

Insurance is only one part of a solid financial plan.

Keep an emergency savings fund for unexpected expenses, and ensure you have an up‑to‑date estate plan so your assets are distributed according to your wishes.

Regularly review your superannuation and investment strategy to ensure they still support your goals.

Bridging the gap

Underinsurance doesn’t have to be your story. By understanding the scale of the problem and taking simple steps, reviewing your cover, adjusting benefits to suit your budget and seeking advice, you can transform insurance from an afterthought into a cornerstone of your financial future.

At Face Up Life we believe protection should be empowering, not overwhelming. We’ll help you calculate how much cover you really need, compare policies and integrate insurance into your broader retirement plan.

Don’t wait for a crisis to discover you’re underinsured, act now, book your free initial call and give your family peace of mind for the future.

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