Life insurance decisions: Don’t act hastily in wake of Japanese disaster

The Japanese earthquake-and-tsunami tragedy of March 2011 is expected to create a surge of interest in life insurance as it did after the 9/11 terrorist attacks 10 years earlier, experts say. Buying life insurance as a knee-jerk reaction to such a tragedy may not be a good idea. However, in some cases motivation from something like the Japanese disaster may be beneficial.

“Tragedies serve a useful purpose in reminding us of our own mortality,” says Jon Dressner, senior vice president of the Life and Insurance Foundation for Education (LIFE).

Although it’s too early to measure the insurance effects of the Japanese earthquake and tsunami, research found that consumers were more willing to meet with advisers to talk about life insurance and were more likely to buy life insurance policies after 9/11, says Kate Theroux, a spokeswoman for the LIMRA life insurance trade group.

More Americans are expected to contemplate buying life insurance following the earthquake and tsunami in Japan.

Many people should purchase life insurance but often procrastinate about buying it, Theroux says. “They’re confused about buying it, don’t know how much they should buy, and they end up doing nothing,” she says.

A tragic event such as the Japanese earthquake and tsunami can prompt even the most stubborn procrastinators to make a decision, however. But people who believe life insurance is valuable usually don’t wait until a tragedy happens to buy it, Theroux says.

“Although no financial decision should ever be made in haste, people who’ve been on the fence about life insurance may now see the value of it,” Theroux says. “If they already have a policy, they may reassess whether or not they have enough coverage.”

Personal events such as weddings and deaths also prompt many people to get life insurance or to reassess their coverage “and see if they’re adequately covered,” Theroux says.

Make a sound decision

A natural disaster like the Japanese earthquake and tsunami may be a wake-up call for those on the fence about life insurance, but it should not be the sole reason to buy a policy, says Daniel Solin, author of four books on investing, including “The Smartest Investment Book You’ll Ever Read.”

“For most people, life insurance is something that should be very seriously considered, whether they’re married or single, have children or no children,” Solin says. “However, a tragedy or airplane crash should not be a reason for a person to rethink their need for life insurance.”

A more accurate barometer for gauging the need for life insurance is actuarial tables published by the Social Security Administration that map out your life expectancy, according to Solin. “The data is far more reliable than a natural disaster, which is impossible to predict and even more impossible to relate to your particular life span,” Solin says.

Regardless of your motivation to consider life insurance, a tragedy that captures the world’s attention reminds us of how fragile life is, says Dressner, the senior vice president at LIFE.

“After 9/11, we saw a spike in interest in life insurance, a spike in applications and a spike in sales of life insurance, but it only lasted a few months and then settled back into its regular routine,” Dressner says. “It’s likely to happen with the Japanese disaster as well.”

Who needs life insurance?

The vast majority of people do need life insurance, according to Dressner. Exceptions may include single people who don’t have a spouse, dependents or a business, he says.

LIFE’s surveys show 85 percent of Americans do recognize the need for life insurance, yet most of them don’t buy it. More than 100 million Americans don’t have life insurance or don’t have enough life insurance, according to Dressner.

“We care about people getting the coverage they need more than the reason behind their motivation to get it,” Dressner says. “So maybe the crisis in Japan is the reason they get it.”

Theroux, the LIMRA spokeswoman, says it’s always important to consider the “what if’s” in the life, whether it’s being killed in an earthquake or dying in a car crash. “The good thing out of a tragedy is that others may be better prepared if they found themselves in a similar situation,” Theroux says.

–Linda Melone