By Cyril Tuohy
The difference between the median amount of life insurance coverage in place compared with the amount needed to cover self-reported needs – known as the insurance coverage gap – widened by more than $30,000 in the five-year period ending in 2013, a new study finds.
Previous studies had found the gap to be growing, but the latest findings still came as a surprise, said Chris Blunt, co-president of the Insurance and Agency Group of New York Life, which commissioned the Life Insurance Gap survey.
“It’s no surprise that Americans are underinsured,” Blunt said in a press release. “What did surprise us was the magnitude of the gap and the fact that it has grown so dramatically since 2008, putting families at even greater financial risk.”
The coverage gap in 2013 was measured at $320,000, an increase of $30,622 compared to the gap that existed in 2008, the survey found.
The gap is calculated by subtracting the median amount of life insurance coverage in place from the amount needed to cover self-reported family needs in the event of the loss of a breadwinner.
In 2013, the amount of coverage families said they needed was $540,000, but the median amount of life insurance coverage in place only came to $222,000, a gap of $320,000.
In 2008, the amount of coverage families said they needed was $589,378, but the median amount of life insurance coverage in place was $300,000, a gap of $289,378.
The gap has grown to $320,000 in 2013 from $298,378 in 2008, an increase of 11 percent over the five-year period, the survey found. The wider the gap, the thinner the insurance protection and the more difficult it becomes for families to surmount financial hardships.
The widely-followed survey also found big differences in the coverage gap based on geographical regions of the country.
Survey respondents located in the West reported the highest coverage gap: $457,000. They were followed by families in the Northeast with a gap of $334,000, the South with a gap of $302,000 and the Midwest with a gap of $229,000.
Underscoring the idea of the gap, the survey also found a similar divide between people’s perception of insurance and the reality of their insurance coverage.
For instance, the survey found that 60 percent of respondents believe they have enough life insurance coverage when in reality only 20 percent have enough life insurance to meet their stated needs.
Similarly, Americans want their life insurance coverage to provide for them for 14 years beyond the death of a breadwinner, yet existing coverage only provides enough to cover three years beyond the breadwinner’s death.
The 2013 survey was conducted by The Futures Company which surveyed 1,004 people from April 24 to May 1. Participants were at least 25 years old, married or with dependents, and with annual household income of at least $50,000.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
© Entire contents copyright 2014 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.