Most Americans will tell you that a life insurance policy is an important thing to own for mutual protection of those who depend on one another... yet about 2 out of 5 people don’t have one.1
Danica Patrick, of car racing fame, is for the third time climbing into the public-service driver’s seat 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 in 2016 and is doing it again this year.
“As a race car driver and athlete, being fit is important to me. But fitness extends to all parts of your life, including your finances,” Patrick said. “And when it comes to being financially fit, getting life insurance is key.”
Indeed, there seems to be a growing recognition that life insurance ownership needs to grow. Among those with life insurance, about one in five said in a recent survey that they do not have enough. And two in 5 millennials said they wish their spouse or partner would buy more life insurance; much higher than among those in the Gen X or boomers generations.
The study was conducted by Life Happens and LIMRA, an association of life insurers, which tracks consumer perceptions and attitudes about the insurance market. Called the Insurance Barometer Study, it was conducted in January 2018 and surveyed more than 2,000 people.
The traditional and primary motivation for owning insurance, to protect loved ones, remains the major consideration. Eighty-five percent of the respondents said someone who is married and has children should have life insurance.
Reasons for buying life insurance
Reasons for purchasing life insurance can be as varied as the 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 also 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.
Still, for a majority of people, there’s a more straightforward motivation for wanting insurance. In the survey, 91 percent of respondents said covering burial and final expenses was a major reason for owning life insurance.
Another top reason? Paying the bills. Sixty-six percent of respondents said replacing the lost income of a wage earner was a primary motivation for purchasing insurance. And the Insurance Barometer results indicated that given the loss of the primary wage earner, four in 10 households (without insurance) would have immediate problems paying the bills.
Other major reasons for buying insurance included: leaving an inheritance (63 percent), paying off the mortgage (51 percent), and paying for home care expenses (48 percent). Supplementing retirement was also one of the top reasons at 45 percent.
Fifty-nine percent of the respondents in the Insurance Barometer Study owned some form of life insurance.
The reasons for not purchasing life insurance? Sixty-one percent said they have other financial priorities while 63 percent said life insurance is too expensive.
Interestingly, participants were asked to estimate the cost of a $250,000 20-year level-term life insurance policy for a healthy 30-year-old. The median estimate was more than three times the actual cost, $160 a year.
And so the need for education, Danica Patrick, and Life Insurance Awareness Month.
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1Life Happens, “Insurance Barometer Study 2018,” April 25, 2018.