Consumers’ understanding still a big issue for life insurers

Time and again, studies have shown that one of the biggest issues when it comes to people actually getting the life insurance they may need is misconceptions. As a consequence, millions of Americans might think they don't need or can't afford coverage, when, in fact, this is not even remotely the case. New data shows that nearly half of adults nationwide may fall into this category.

Today, only 51 percent of Americans have some sort of life insurance policy in their name. The biggest reasons those who do not have coverage fall very much in line with the types of common misunderstandings that plague the industry as a whole, according to the latest Planning and Progress Study from Northwestern Mutual. For instance, 43 percent of people who don't have life insurance said that they felt it was too expensive, and 31 percent said that they just consider the priority of owning it to be too low in comparison with other things they have to pay for in their lives. Another 14 percent or so said that they don't have life insurance simply because they've never really looked into it one way or the other.

Millennials may have more need for life insurance, and less understanding of it.

Why is that a problem?
David Simbro, the senior vice president of life and annuity products for Northwestern Mutual, noted that these attitudes don't really jibe very well with the stated goal most Americans have of achieving financial security for a long period of time, the report said. He further added that this often arises because of the misconceptions that typically surround life insurance as opposed to other investment products.

Part of the reason for that, it seems, is that people really only know that life insurance can be used as something of a death benefit, when that's not always going to be the case, the report said. For instance, fewer than 1 in 4 respondents knew the proceeds of coverage could be used to pay down debt, including mortgages, and fewer than 1 in 6 understood it could also be used to pay for estate taxes in the event of a policyholder's death. Further, just 12 percent knew it could be used to create an estate, 8 percent said they knew it could be used as an income source in retirement, and only 5 percent were aware they could use that money to pay for a child's college education.

Where is the disconnect biggest?
Perhaps not surprisingly, 28 percent of millennials said that they've never really thought about life insurance and don't know much about it, the report said. That's double the rate for the rest of the adults in older age groups surveyed.

Young adults may not feel they have much need to know about life insurance these days, but they actually could be among the people who benefit from such coverage most. The more life insurance policy issuers can do to connect with Generation Y these days, the better off they're likely to be going forward.