Imagine the sick feeling in the pit of your stomach when you realise you’ve lost the only possessions you owned.
In the wake of a traumatic experience like a house fire or car accident, people rely on their insurance claim to help them to recover.
But many people on low incomes are unable to afford insurance – leaving them exposed to serious financial hardship if disaster strikes.
“Everyone needs insurance, but there are people who don’t have adequate incomes to support this,” said Marieke Dijkstra, an Anglicare Community Services Worker. “For example, people on Newstart or Youth Allowance are trying to live on $260 a week. Just paying the rent and being able to afford food is difficult”.
67% of renters and 29% of homeowners in Australia have no household contents insurance. And between 10-15% of drivers are not insured for third party property damage, although many Tasmanians mistakenly believe that this is included in their annual vehicle registration fee.
“The solution is that base payments need to be increased to a dignified level,” said Marieke. These payments do not cover the cost of living and Anglicare has called on the Federal Government to increase Newstart and Youth Allowance as a matter of urgency.
“People are caught in this poverty trap,” said Marieke. “It’s unaffordable to insure, but it’s also unaffordable not to insure. Basic insurance is an essential, but it’s out of the reach of many”.
Marieke said even when people could afford insurance, literacy issues often made it difficult for them to choose the most suitable insurance product. “There’s a lot of misunderstanding about insurance,” she said. “People may have inappropriate insurance – such as comprehensively insuring a vehicle that’s worth very little, or not understanding the difference between house and contents insurance. Sometimes people don’t realise that tenants can purchase contents insurance”.
Anglicare’s Financial Counsellors are available to help explain insurance and provide information about affordable, appropriate products.
Rick Tipping from the No Interest Loans Scheme says that people on low incomes who do not have insurance cover struggle to recover from sudden loss. “People on higher incomes generally have greater capacity to manage in an event where they need some savings or insurance,” he said. “But if people on low incomes have something happen to their items, they simply can’t afford to replace them”.
Rick said people on low incomes could also be at increased risk. “For example, they’re driving older vehicles which are much more easily broken into, so can be stolen or damaged,” he said.
He said affordable insurance like Essentials by AAI featured plain language and a minimum of paperwork. This insurance gave people the option of making fortnightly premium payments and managing these through Centrepay. “This insurance has been specially designed for people who are on a tight budget,” he said. “To be eligible you need to have a healthcare card, receive Centrelink payments, or have a household income of around $48,000 or less”.