Life insurance is considered one of the most important insurance products on the market, but it's often the least talked about and most uncomfortable to approach with friends and family. It shouldn't be surprising, then, to learn that more than one-third of Americans don't have a life policy.
Why do so many people remain uncovered?
A recent Princeton survey commissioned by insuranceQuotes found that of those 37 percent of adults the most commonly cited reason for not having life insurance was the associated expense (59 percent).
But the survey findings also reveal that even if money concerns weren’t an issue, respondents still wouldn’t purchase a policy — leading experts to believe that something larger may be at play.
Who's not buying life insurance?
The survey, conducted in May 2017 of more than 1,000 U.S. adults 18 and older, found that those who do not currently have life insurance:
- Largely belong to the millennial generation: 65 percent in the 18-29 age bracket do not have life insurance policies compared with 29 percent in the 30-49 age bracket, and 26 percent in the 50-64 bracket who do not have life insurance policies.
- Are not married: 75 percent of those with life insurance policies are married compared with 23 percent who are single.
- Have less formal education: 26 percent of those without policies are college graduates and 34 percent have had some college education, while 72 percent of those with policies are college graduates and 65 percent have some college education.
- Make less money: Of households with an annual income of $75,000 or more, 78 percent have life insurance policies, and in households with an annual income between $50,000 and $75,000, 74 percent have life insurance policies.
Is life insurance an expense or investment?
Experts say that viewing life insurance as an expense is not uncommon, but it’s better to think of it as an investment.
“Unlike auto or home insurance, which may or may not ever be needed, life insurance covers losses against an event that is inevitable,” says Dave Bryant of Brystra Insurance Services.
The debate surrounding what is best — term or permanent life insurance — is still alive and well.
“If your goal is to make sure your family has enough to be taken care of financially if something does happen to you, then term life insurance is a lot cheaper than permanent life insurance policies,” says Richard Morris at Southwest Premier Insurance Agency in Arizona.
“Keep in mind though, term life — also called temporary life — comes with an expiration date.”
In contrast, permanent life insurance policies are designed to cover you for an entire life — provided policy premiums don’t lapse. Premiums are more expensive, but permanent life products pay dividends to policy holders contingent upon company performance.
A total of 51 percent of those surveyed who do not have a life insurance policy believe they are healthy and just don’t need life insurance.
“Longer life expectancy rates have caused people to be more concerned about living too long than dying too young according to our research,” says Catherine Theroux, spokesperson for the the insurance research organization LIMRA. “Consumers often don’t know that permanent life insurance policies can serve a dual purpose — to ensure a family is adequately protected in the event of a primary caretaker’s death and help plan for retirement.”
Morris points out that factors, such as dependents, retirement and estate tax come into play in deciding which type of policy is best.
Another gray area for consumers is whether or not to purchase a policy on their own or through work — or both. Of those with a policy, notably more respondents purchased their own policy (32 percent) than those who purchased through work (20 percent) and 8 percent purchased both.
While many employers offer basic life insurance to their employees as part of their benefits package, it is usually a small amount, not more than their annual salary. Experts say those with dependents and other financial commitments such as mortgages should consider work policies as supplemental to their own policies.
“There’s been a real shift in the degree of loyalty between companies and employees in the last few decades,” Morris says. “More frequent job changes place policy holders at risk for losing their life insurance coverage.”
That’s one of the reasons Morris advises clients to purchase insurance outside of work, to retain greater control should something unexpected happen.
Millennials and life insurance
Millennials, who comprise 53.7 million Americans according to the latest Census Bureau data, are also impacting the life insurance market. The survey found that those in the age bracket (18-29) who are not currently covered by a life insurance policy (71 percent) say it’s because they’re healthy and don’t need it.
This is not news to industry professionals. Chris Huntley, president of Huntley Wealth & Insurance Services, says he often speaks to Millennials who not only believe life insurance is too expensive, but they also don’t want to hassle with the health exam — until the need is great enough.
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“Even when Millennials get married in their mid-20’s, they still don’t see the need to buy. It usually takes buying a home together or having a child or two before they realize that their family would be in serious trouble if they were to die — and that’s when they purchase a policy, albeit reluctantly.”
This attitude might explain why the majority of those who don’t have a policy say they’d spend extra income in the following ways before buying affordable life insurance:
- Purchase food or utilities (76 percent)
- Put money in a savings account (71 percent)
- Pay down debt such as car loan or student loan (67 percent)
- Donate to a charity (49 percent)
But as Morris points out, the longer you wait, the more expensive the policy.
“It’s really the forward-thinking Millennial who factors in things like history of family health, not just marriage and kids, when considering a policy.”
Making the most of your life insurance
Experts agree that consumers can more easily identify their life insurance needs and manage their policy by following these tips.
Consult a qualified agent: Of those who don't currently have a policy according to the survey (59 percent), 33 percent say shopping for life insurance is too difficult or confusing. “You can’t apply a one-size-fits-all approach to buying life insurance,” Bryant says. “A qualified broker can help consumers shop around for a policy that meets their unique needs.”
Get a quote: Experts recommend obtaining a life insurance quote before dismissing life insurance as too expensive. “A barometer study LIMRA & LIFE conducted in 2013 found that consumers thought premiums for a life insurance policy were up to three times what the actual cost was,” Theroux says.
Keep beneficiaries in the loop: The survey found that respondents were virtually split when asked who is responsible for notifying beneficiaries about a death benefit: 40 percent say the insurance company is responsible while 44 percent say the beneficiary is responsible. To reduce the chances of an unclaimed benefit, policyholders should make sure beneficiaries have immediate access to updated information about their policies. “Life insurance is not about you — it’s about your loved ones,” Bryant says.
Editor's note: The Princeton survey about life insurance was conducted online May 4-7, 2017 among 1,001 U.S. adults age 18 and older.