No surprise: Consumers generally don’t have enough life insurance

Over the past several years, the life insurance industry has struggled to reach many consumers in the ways it used to, for a number of reasons. Not the least of these is the financial struggles many Americans have faced, but new data suggests that they might actually be putting themselves and their loved ones in greater danger going forward in this regard if they go without such coverage for a long period of time.

The so-called life insurance gap between the amount that plans will give to surviving beneficiaries versus the amount those people believe they will need to live for a number of years has grown 11 percent in the five-year period ending last year, according to the latest data from New York Life. In 2008, the median amount of coverage consumers had in place was $300,000, and that number had plummeted to just $220,000 through the end of 2013. Meanwhile, self-reported needs have also fallen, though not as considerably, to the most recent level of $540,000 from the previous figure of slightly more than $589,000. That leaves a current median coverage gap of some $320,000, up from a little more than $289,000 five years earlier.

However, that can range considerably by region, the report said. For instance, the gap was smallest in the Midwestern part of the country, at just $229,000. The South wasn't far behind at $302,000, and the Northeast saw a median disparity of $334,000. By far the largest problem was in the West, where the coverage gap was $457,000 through the end of last year.

A perception problem?
Meanwhile, these issues seem to be at least partly the product of the fact that people don't really seem to know what they need from their life plans, the report said. Despite these huge gaps in needs, 60 percent of those polled believe they have enough coverage, while only 20 percent actually do. Moreover, people think their coverage should last for an average of 14 years after the policyholder's death, but in reality that number is closer to three. And while 4 in 5 people say life insurance should be purchased in a person's 20s or 30s, only 18 percent of millennials have such policies in their names.

Life insurers may want to try to do more to highlight this coverage gap and address the issues that can arise as a result of misconceptions about the coverage, as a means of better reaching a larger number of prospective clients.