By Cyril Tuohy
More than one third (35 percent) of consumers worked with an insurance agent or financial advisor to figure out how much life insurance coverage they need, and many consumers are willing to spend more to adequately replace lost income, according to a new survey.
At the same time, one in five consumers simply guessed at how much coverage they needed to replace lost income, the survey also found.
Advisors, however, play an important role in motivating or pushing consumers to buy enough coverage to replace lost income, particularly as life insurance often is perceived as being too expensive, said Eric Henderson, senior vice present of life insurance and annuities for Nationwide Financial.
“We know that consumers don’t respond well to scare tactics, however, they may be relieved to learn that the solution is not as scary as they may expect,” Henderson said in a news release. “Even if they don’t feel compelled to buy enough life insurance to replace all of their income, most consumers can afford enough to put a significant dent in their income gap. That’s at least a step in the right direction.”
A consumer, on average, will earn about $1.5 million over a working lifetime. Yet the individual life insurance policy of that same worker will, on average, only hold $300,000 in coverage, leaving $1.2 million uninsured, a gap referred to as the income replacement gap.
Closing the gap isn’t as daunting as it looks, particularly since the survey found that consumers are willing to pay more for adequate coverage. A family breadwinner is willing to pay as much as $99 per month, on average, to replace his or her income in the event of death, the survey found.
That means a healthy 35-year-old worker can buy a 20-year term life policy worth as much as $2.3 million, and a healthy 35-year-old woman can buy more than $2.6 million, according to Nationwide.
Henderson said life insurance is cheaper than people seem to think, even as consumers suffer from a paralysis born of the perception that coverage is too expensive. “A lack of understanding of the true cost of life insurance may be part of the reason for such widespread consumer inaction,” he said.
A separate study by LIMRA found that only 29 percent of respondents believe they can afford enough life insurance to replace household income adequately, and that consumers overestimate the cost of life insurance by nearly three times.
The results are part of Nationwide Financial’s Life Insurance/Income Replacement Study conducted online by Harris Interactive March 15 to March 21, of 1,163 U.S. adults between the ages of 24 and 66 years old with household incomes of $24,000 or more.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at Cyril.Tuohy@innfeedback.com.
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