Think about this… 5.4 million Australian families would face financial hardship if either parent dies.

According to research conducted by Rice Walker Actuaries there is a gap of $1.3 billion between the level of life insurance cover of average Australians and the amount needed to cover their financial commitments.

I’ve talked about the problems of underinsuring your home before. Well this is underinsuring your income needed to provide for your family if you die. I think we’d all hate to die and leave our family in financial strife. But this is exactly what is happening.

The experts say the average full-time worker in their mid-30’s with young children needs life insurance cover equivalent to 10 times their current income. But only 4 per cent of people actually have this level and 60 per cent in this category have no life cover at all.

Now I don’t want to get too morbid here but it’s worth getting a reality check.

• . 4400 parents with dependent children die each year.
• .  it costs around $450,000 in today’s dollars for the average family to raise 2 children from birth to age 20.
• . the average Australian is underinsured by almost $500,000
• . only 22 per cent of Australians have any life insurance.
• . The average family has a $216,500 home loan and $14,500 in other debts.
• . life insurance premiums to cover these commitments are equivalent to a cup of coffee a day.

For anyone with dependants or other significant financial commitments, life insurance buys peace of mind. But the annual premiums for death cover are an ongoing burden in themselves.

Wouldn’t it be great if death cover was tax deductible in the way income protection insurance premiums are? Well, it can be. That’s if you buy your life policy through your employer’s superannuation fund.

Life insurance benefits are available through most super funds these days with premiums being paid from contributions to the fund.

Obtaining life insurance this way means buying as part of a group of other fund members with the fund manager negotiating a group rate.

This means you will get automatic acceptance up to a certain level of cover. The majority of people don’t buy life insurance this way and don’t understand the advantages.

The group rate for buying in bulk will often result in a lower cost per policy. Therefore you can generally expect to pay a lower premium while the policies are much the same. And if you are self-employed with your own portable fund, it is really the way to go.

If you don’t want to reduce the amount going towards your retirement nest-egg have your employer make extra contributions from your pay into the fund to cover the premiums.

With a bit of negotiation with the boss you can arrange to take advantage of the tax deduction. If you die and the fund has cause to collect this insurance, the benefit standing to your credit in super together with the lump sum collected from the life insurance company is paid to your spouse or dependants. However, this total payout is tax-free only up to your pension reasonable benefit limit (RBL). If the payout exceeds your RBL including the death benefit, the surplus is treated like any excess benefit and taxed at the highest marginal rate. For many the combined amounts are unlikely to exceed their RBL.