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Consumers know all about their life insurance shortfalls

Life Insurance and Annuities
by Scott Morrow
Consumers know all about their life insurance shortfalls
Consumers know all about their life insurance shortfalls

One of the biggest issues the life insurance sector seemingly always grapples with is people not having enough coverage to meet their long-term financial needs, and often not knowing how big the problem is. However, it seems that a number of factors, including the pandemic and its resulting economic downturn, have come together to give people a bit of a wake-up call. Now, a growing number of people seem to realize the importance of such coverage and recognize that they simply do not have enough of it.

In one recent survey conducted by Global Atlantic, more than 4 in every 5 respondents said they felt the need to insulate their families from financial risk in the event of an untimely death, but 43% didn't have life insurance right now. In fact, only about 1 in 3 Americans indicated that they felt they had the right amount of life insurance for their needs, and fewer than 1 in 5 noted that they had no need at all.

Meanwhile, 37% felt they had a greater need for life insurance. That group was divided more or less evenly between people who currently had at least some coverage, but not enough (19%) and those who had no coverage (18%). Another 11% said they just didn't know how much life insurance they needed. Perhaps not surprisingly, 28% of respondents said they have been forced to rethink their position with respect to life insurance since the pandemic began.

Life insurance needs are becoming clearer for consumers.Life insurance needs are becoming clearer for consumers.

Another angle
A separate poll, conducted earlier this year by Harbor Life Settlements, found that 70% of Americans have at least some form of life insurance. The single most common form of coverage, carried by 35% of those who were insured, was via a term life policy. However, 11% of those who had such coverage said they didn't even know what kind of policy they had, despite the fact they are paying for it every month.

Interestingly, this comes despite the fact that Americans aged 55 and up are significantly more likely than other demographics to be worried about being able to cover their financial needs for the remainder of their lives, including about 1 in 5 who feel they will not be able to live comfortably in their current situations.

Overall, 37% of those polled believe that the primary reason to buy life insurance is to replace their income if they were to pass away, while another 31% say it is to cover final expenses, and 21% said the big decision-driver for them was to create a level of inheritance for family members left behind. Only 9% indicated that their main reason to buy was to create a long-term investment vehicle.

Among the 30% who go without coverage largely did so due to the perception that they cannot afford it (cited by 2 in 5). Another 27% felt they just don't need it, but roughly 1 in 9 noted they don't understand coverage options well enough to actually buy it.

Coverage gaps persist
Even with many Americans having some sort of life insurance — whether purchased individually or via a group policy they carry through an employer — coverage gaps obviously still exist. A recent Haven Life study found that this is true not only in terms of people going without coverage, but also not carrying as much as they need.

One pressing issue highlighted in the survey is that Black respondents had at least some form of coverage more often than white respondents (80% versus 70%), but that the latter tended to have higher-value policies in their name (an average of more than $54,800 among white insureds, versus less than $50,200 among Black insureds). Interestingly, there was a significant disparity in perception about how much coverage their policies provided; white people overestimated their coverage by nearly three times the actual amount, compared with Black respondents actually falling a bit short of what they actually had.

All groups tended to overestimate the price of coverage, but Black respondents generally estimated a higher price than white respondents ($65 per month and $50, respectively). In reality, the actual premiums can be a fraction of either cost for many people. 

What about COVID's impact?
Especially when it comes to cost, the pandemic seems to have affected consumers' perceptions about what they can actually afford and what might make the most sense for their coverage needs. Indeed, a recent LIMRA survey found that 32% of respondents believe understanding the true cost of coverage helped make the purchase process easier overall, with 27% citing the importance of understanding the terms of coverage and finding as much information about it as they could helping as well.

For these reasons and more, insurers have a bigger role to play in helping people understand what coverage can mean for them, their finances, and their families' futures. A little outreach will likely go a long way toward bridging these gaps and solidifying decades-long relationships.

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