Life insurance ownership at lowest point in 10 years?

Over the course of 2020, there were plenty of headlines about how consumers were flocking to buy life insurance and otherwise shore up both their short- and long-term financial situations. However, while that may appear to be a significant trend on the surface, there are actually plenty of forces that make the question a bit more complicated to answer.

The top line on the ups and downs of 2020 is that industry data suggests young people in particular became more engaged with buying life insurance. NBC News cites data from the MIB Group highlighting that year-over-year, life insurance application volume from people under the age of 44 increased by more than 7% in 2020, reversing a years-long trend, even as tens of millions of Americans found themselves out of work due to the pandemic and its resulting economic downturn. That was nearly double the overall increase in people seeking life insurance last year, which came in at 4%, obviously driven heavily by younger Americans.

Experts note that there's not really a complicated explanation for why this happened: The pandemic forced people to more directly confront uncomfortable long-term financial realities, and seek insurance coverage that insulated them from risk.

“I would assume that the coronavirus had made people much more aware of their mortality. It made them really think about what could happen. They realized that they need to protect themselves in one way or another,” Andrea Caruso, MIB's chief operating officer, told the network.

The pandemic has forced people to face harsh financial realities.

Applications don't tell the whole story
What's interesting, however, is that despite all the headlines, the number of Americans who were actually covered by life insurance declined, Best Life Rates reported. In all, there was a roughly 5.6% decline in life insurance enrollment nationwide (from 57% of adults at the end of 2019 to 54% as 2020 closed) because most people who have life insurance have low-dollar-value group coverage through their jobs. With some 22 million people losing their jobs over the course of the past year, it's no surprise that the share of people who have some sort of life insurance dipped.

However, that decline should set off some alarm bells for consumers and the industry alike: It's the lowest number seen since at least the end of 2011. At that time, 63% of consumers had life insurance, and 2019's 57% tied a previous low seen in 2014 and 2015. Only three times in the past decade has the rate of adults carrying life insurance ended a year at or above 60%.

At the same time as more people lost group coverage, though, the increased recognition of how valuable life insurance is meant that the ownership gap — the disparity between the people who say they should have life insurance and those who actually do — increased to a 10-year high of 16%. The previous record in the past decade was just 11%, set in 2017.

Understanding the need
Indeed, there's plenty of data to suggest that Americans were forced to get smarter about their finances overall. For instance, 80% of respondents to a recent poll from Debt.com and HerMoney.com said that they now see the need for an emergency fund, even if they don't necessarily have one yet. Likewise, 20% note that they are now paying more attention to the interest rates they pay on their various accounts, such as credit cards. Moreover, 3 in 10 said they are now sticking to a budget they had made previously, but struggled to adhere to.

Unfortunately, the path to broader life insurance coverage numbers in the U.S. seems difficult even with an increased awareness. The survey also found that more than a third of those polled lost at least 25% of their income during the pandemic. Nearly 95% of those people said they have had to cut spending by at least that percentage of their usual expenses.

Accentuating the positive
Of course, there is plenty of data — including the latest from Best Life Rates cited above — that suggests Americans' lack of knowledge of what life insurance actually costs is a big hindrance to their actually obtaining it. Many people believe coverage costs as much as five times what it actually does, but even those on a tight budget may be able to find coverage that suits them.

For instance, Value Penguin finds that the average standard 20-year term life policy in the U.S. with a face value of $100,000 costs just $23 per month, and even if the value balloons to $1 million (a ten-fold increase), the cost only rises about five times, to $117. The cost is significantly lower for men and women under the age of 40, particularly if they are non-smokers, and that too is something they need to keep in mind.

As a result of these potential clashes between financial realities and what people want to be able to achieve, life insurers may need to do more outreach to highlight just how affordable and responsible it is to obtain individual coverage even in the worst of times.