More data shows importance of having life insurance

Over the last few years, millions of Americans have highlighted a disconnect between consumers' ideals of valuing life insurance overall, and actually having it. There may be many reasons why Americans do not have as much life insurance as they need – or do not have any at all – but data repeatedly shows that carrying such a policy just makes good financial sense.

The biggest issue that many people face when they are thinking about getting life insurance is that they usually overestimate how much it's going to cost them, and often, that overreach is by a significant amount, according to a report from the Albuquerque Journal. In addition, people are often confused as to what types of life insurance policies will work best for them, because they don't know what each does or how much they ought to cost.

What's the problem here?
Most people wouldn't be able to tell their advisors or life insurance agents the differences between a whole, term, universal, or variable policy, and as such, that leads to them dramatically overestimating the cost, the report said. The average healthy 30-year-old who buys a 20-year term policy worth $250,000 probably only pays about $150 per year in premiums (costing about $12.50 per month), but when quizzed as to what they think that will cost them, consumers will generally say something more in line with $400, or $33 per month.

This problem may be particularly pronounced among households that usually need life insurance most: Those with young adults as the primary income earners, the report said. Indeed, polls show that some 60 percent of such households say it would be tough to cover their basic financial needs if the family's primary earner were to pass away, and yet this is the group that tends to have the least life insurance.

Young families have need of life insurance, but may not know it.

Bridging the gap
However, those who would shake their heads at millennials need to understand the circumstances in which these young adults came of age, the report said. Most were either in college or had only recently graduated when the recession hit, and that's the group now starting families. It makes sense that they would be a little reticent to start investing in financial products in general, but those they don't understand in particular. In addition, many of them are likely only starting to gain real financial independence in the last few years as the economy improved.

For this reason, it's likely to be vital for life insurers to not only try to sell millennials on the value of such coverage, but also educate them as to what it can mean for them and their families as part of a long-term financial plan – and what it actually costs. If companies can find a way to get over the latter issue, they may be far more likely to see increased sales numbers for young families in the near future.