Nearly nine out of 10 Americans will tell you that a life insurance policy is an important thing to own … yet four out of 10 people don’t have one.1
Danica Patrick of car racing fame is going to try and change that.
September is “Life Insurance Awareness Month,” an effort by the nonprofit organization Life Happens to build awareness of the role insurance can play in financial planning. Patrick was recruited to be the spokesperson for the campaign.
“Driving race cars for a living means driving 200-miles per hour around a track with concrete walls,” she says in her public service announcement. “I know the risks which is why I’ve had life insurance since the start of my career.”
The hope is that Patrick’s visibility in a risky occupation, as well as her family’s story of loss (both her parents lost their fathers at an early age and endured financial hardship as a result), will drive the importance of owning an insurance policy home to more consumers.
Of course, resistance to the notion of insurance has been longstanding. Indeed, as the life insurance industry in the United States began to take hold in the mid-19th century, some people wondered if it was immoral, since the death benefit would soften the consequences of someone’s passing, perhaps contrary to God’s intention.
Insurance agents in those times leaned on a Bible verse to counter such concerns: “Anyone who does not provide for their relatives, and especially for their own household, has denied the faith and is worse than an unbeliever (1 Timothy 5:8).”2
Why People Resist Life Insurance
Nowadays consumer resistance to buying a life insurance policy is less about religion and more about finances. Sixty-four percent of those surveyed in the 2016 Insurance Barometer Study indicated that they put off buying some or more insurance because it is “too expensive.”
The Insurance Barometer is an annual study conducted by Life Happens and LIMRA, an association of life insurers, which tracks consumer perceptions and attitudes about the insurance market. In its sixth year, the study for 2016 was conducted in January 2016, and surveyed more than 2,000 people.
The second most common reason for not buying a life insurance policy is also financially oriented: 59 percent of those surveyed said they had other financial priorities.
“While two in three Americans are concerned about having enough money to retire comfortably, nearly half (45 percent) are very or extremely concerned about it,” the study author, Ashley Durham, noted in a discussion of the results. “When asked why, 50 percent cite the economy and nearly 40 percent admit they haven’t saved enough for retirement. Nearly 30 percent of Americans are concerned over the solvency of Social Security and the disappearance of defined benefit plans. And while one in four acknowledge their lack of planning, the number is likely much higher.”
The irony is that financial problems are a major result of not having life insurance. The Insurance Barometer results indicated that given the loss of the primary wage earner, 1 in 3 households would have immediate problems paying the bills.
Unfamiliarity with insurance policies is an underlying theme in the survey results. In relation to the objection about insurance being “too expensive,” participants were asked to estimate the cost of a term life insurance policy for a healthy 30-year old.
“The median estimate was more than twice the actual cost,” Durham noted in the analysis.
Similarly, 40 percent of those in the survey cited doubts about types of insurance policies and coverage requirements are their reason for putting off a purchase.
(Related: Life Insurance Terms You Need to Know)
Trust is also a sticking point. Thirty-eight percent of the survey respondents said they don’t trust insurance agents and an identical percentage said they don’t trust insurance companies.
Of course, 35 percent of those surveyed confessed that procrastination was behind their lack of an insurance purchase.
Why People Want Insurance
Reasons for purchasing life insurance can be as varied as individuals themselves. And the motivation for one person to become insured might be quite different than the motivation for another.
For instance, the major wage earner in a middle-class family might be worried about making sure that his/her family could continue to pay the mortgage should he or she unexpectedly die. Someone more well-off or with fewer immediate family obligations, however, might be looking at certain kinds of insurance as a means to help with estate planning.
In fact, insurance can meet some pretty sophisticated needs for a wide range of consumers. That’s because certain types of policies, like whole life or universal insurance policies, not only provide a death benefit, but can accumulate cash value that can be accessed in later years. That's an option that some people like to have to help with college expenses or to supplement income in retirement if necessary. Of course, there are consequences. Accessing a policy’s cash value through loans or partial surrenders will reduce the policy's cash value and death benefit and increase the chance the policy could lapse, possibly incurring a tax liability if the policy terminates prematurely. (Related: Treating Cash Value with Care)
But for a majority of people there’s a more straightforward motivation for wanting insurance. In the Insurance Barometer survey, 53 percent of respondents said covering burial and final expenses was their major reason for owning life insurance. (Related: Funeral Costs and Considerations)
Other top major reasons included: replacing lost income (35 percent), paying off the mortgage (30 percent), leaving an inheritance (28 percent), paying for home care expenses (23 percent), and supplementing retirement (17 percent).
“While income replacement is a top reason people own life insurance, more should consider this traditional need for protection,” Durham said in the study analysis, referring again to the indication that one in three homes would be in financial trouble if the primary wage earner passed. “Millennial households are most at risk,” Durham added.
The Knowledge Barrier
The lack of appreciation for the need for income replacement in the event of a wage earner’s untimely death again points up the lack of knowledge about insurance in general.
As noted earlier, unfamiliarity with life insurance — the types of insurance policies that exist and what level of coverage one might need — was cited as one of the major barriers to purchasing insurance. Insurers, many taking advantage of the Internet Age, have tried to fill the void with a variety of educational campaigns and awareness programs.
Like Danica Patrick and Life Insurance Awareness Month.
The good news is such efforts seem to be working. The Insurance Barometer survey found that 66 percent of consumers would be at least somewhat likely to recommend ownership of life insurance to others, an 11 percentage point increase from the previous year.
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1 Life Happens, “Insurance Barometer 2016,” April 5, 2016
2 Richard Hooker, “A Century of Service: The Massachusetts Mutual Story,” 1951