New Zealanders are under-insured by about $650 billion, a two-year research project has found.
The project, which was commissioned by the Financial Services Council (FSC), is the first study of its kind, and used data compiled by Nielson, which was analysed by Massey University researchers.
Specifically, the project found that Kiwis did not have the right amount of permanent disability, income protection, trauma or life cover.
"The research paints a picture of serious financial risk for New Zealanders and their families should a main and other income earner die, or have their incomes disrupted through non-accident events, including things like cancer, heart attacks, strokes and other serious diseases," said FSC Chief Executive Peter Neilson.
The average primary income earner's life is underinsured by more than $85,000, while the average secondary earner's life is underinsured by more than $60,000, findings revealed.
Meanwhile, in more than two-thirds of families, the primary income earner's life is underinsured, with the rate of underinsurance of 79.6% for families with teenage children.
Families are also underinsured against the potential impact of long-term illness on the primary income earner.
Accordingly, the research showed that while more than half of survey respondents would experience financial hardship if the first income earner suffered a long-term illness, nearly 40% of respondents had no personal risk insurance at all.
It also reveals that in some cases secondary earners' lives are over insured compared with main earners because circumstances change and insurance policies have not been regularly reviewed.
Nielsen said that the results indicated that the burden of underinsurance would be likely to fall on the family of those affected by serious illness with nearly 40% of respondents saying that their family would have to bear the weight of supporting them financially if the family unit's first income earner were to die suddenly or suffer a long-term illness.
This is despite the fact that 82% of the respondents' family units had two income earners.
Rearchers also found that less than a quarter of respondents regularly reassessed their insurance cover and only 21% worried about having adequate cover.
Accordingly, Massey analysts say one way to prevent under-insurance would be for the Government to consider bundling life and income protection insurance into KiwiSaver to boost coverage of the most vulnerable.
The research involved 2000 respondents in an online survey.
· Life - $195.609 billion
· Trauma - $58.678 billion
· Permanent disability - $351.827 billion
· Income protection - $2.966 billion per month