A Look At The Life Insurance Gap

By Cyril Tuohy

InsuranceNewsNet

Maybe it’s that life insurance has a marketing problem. Maybe it’s the competition with retirement and investment products. Or maybe it’s just that there are fewer life insurance agents willing to sit down at the kitchen table for a tete-a-tete about family protection needs.

Why so many Americans are uninsured and underinsured for life insurance has the industry concerned not so much about its own future — although declining life insurance sales don’t help — but about the future of middle-class Americans and their ability to protect their families.

The coverage gap — the difference between the median amount of life insurance coverage in place compared with the amount needed to cover self-reported needs in the event of the loss of a family breadwinner — widened by $30,622 to $320,000 over the five-year period ending in 2013, according to the Life Insurance Gap survey released earlier this year by New York Life.

It’s not that consumers aren’t shelling out for life insurance protection — they are. Industry income from premiums for life insurance policies rose to $135.3 billion in 2012, from $127.4 billion in 2011, with most of that gain coming from individual policy premiums, according to the American Council of Life Insurers. Consumers often claim life insurance is too expensive, but when they are presented with the facts, it turns out that they overestimate the cost of life insurance by nearly threefold, according to a recent LIMRA/Life Happens study.

September is Life Insurance Awareness Month. To mark the occasion, it’s worth digging into a few “protection industry” favorites for a rough comparison of life insurance with how much consumers are willing to pay for other services often cited as a means of protection.

In California, a 30-year-old male nonsmoker could buy $500,000 of coverage on a 30-year term life policy for about $56 a month or $672 a year, according to MetLife’s instant Internet quote. Term life sponsored by an employer would come even cheaper.

Yet surveys repeat this refrain annually: People spend more time planning their vacation than they do planning their life insurance needs. One of the major reasons consumers say they avoid buying life insurance is that it costs too much.

As a result, less than half of middle-market consumers between the ages of 25 and 64 have individual life insurance coverage, according to LIMRA. But it turns out that life insurance is cheaper than other forms of protection, and the hand-wringing over the cost of insurance  amounts to a textbook case of misplaced priorities.

Take dogs. There were 69.9 million dogs in the United States in 2012, and 36.5 percent of households owned a dog in 2012, according to the 2012 U.S. Pet Ownership & Demographics Sourcebook and the American Veterinary Medical Association.

Dog owners cite the protection value of dogs: their bark and their bite. Dogs, though, don’t come as cheap as term life insurance for a healthy 30-year-old.

A large dog will cost its owner an average of $1,843 in the first year of ownership, according to the American Society for the Prevention of Cruelty to Animals.

Costs include annual expenses such as food, medical exams and vaccinations; capital costs include spaying or neutering, collars and a crate, and special costs include grooming.

There’s health insurance as well. For owners looking to put a premium on the lives of their Akitas, Doberman Pinschers and bull terriers, Petinsurancereview.com lists monthly health insurance costs of anywhere from $4.85 to $43.75.

Unlike dogs, life insurance doesn’t offer the policyholder companionship, but life insurance does offer financial protection for a companion.

Another favorite weapon in the search for protection: guns.

There were more than 300 million privately owned guns in the United States, according to the National Rifle Association’s Institute for Legislative Action 2013 fact sheet, and that number is rising by about 10 million a year.

Of those 300 million-plus guns, about 114 million were handguns, according to the Congressional Research Service.

List prices for a handgun made by Smith & Wesson, the quintessential American gun manufacturer, range from $339 to more than $1,600, the gun maker’s website shows. A 20-round box of pistol and handgun ammunition will retail for more than $60.

Purchasing permits, registration requirements and concealed carry permits can cost up to $1,000 to cover training and range proficiencies. The total economic impact of the gun industry to the U.S. economy in 2012 was $31.8 billion, according to the National Shooting Sports Federation.

Firing at an armed intruder may protect your life. But unlike a life insurance policy, pulling the trigger may also end your life if you miss and an armed assailant finds his or her mark.

Another huge life protection market is the home security systems industry, which is expected to grow to $34.46 billion in 2017, from $20.64 billion in 2011, according to research published two years ago by the consulting firm MarketsandMarkets.

Installation of security systems can cost as little as $100, but fees often run into the thousands of dollars for a large, properly wired home.

Critics point to monthly or annual monitoring fees and high rates of false alarms as drawbacks of wired monitoring systems. Other industry observers point to the irony of homes, wired to the gills, located in communities with very little crime.

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].

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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 [email protected].