By Cyril Tuohy
For advisors, the bad news about selling life insurance to Generation X is that this generation, already underinsured, is falling even further behind in terms of coverage. The good news is that Gen X is keenly aware of it.
The most important insight for advisors, however, may well be that there’s an opportunity for financial planners to broaden the discussion about how life insurance fits into the overall protection goals of a Generation X household.
Financial advisors who can offer ways for a middle-age household to prioritize its financial planning, and present breadwinners with the importance of making choices, are in a position to add real value to clients, said J. Walker Smith, chairman of The Futures Company, a research and consulting organization.
“To the extent that agents can help people think about this in the broader sense, that’s the value that they can bring to this generation right now,” Smith said.
Gen X, sometimes referred to as the “sandwich generation” because it is squeezed between the large baby boom generation in front of it and the even larger Generation Y behind it, is living under financial pressure not seen in many generations, he said.
Many middle-age households are pinched by home payments, big tuition bills, retirement savings and crushing medical expenses not only for themselves but for their parents. And that was before the Great Recession.
With those burdens, is it any wonder that Gen X households are skimping on life insurance coverage and putting even more of their security at risk? It’s not, and recent data comparing life insurance coverage to five years ago shows the coverage gap has grown over the past five years.
The median amount of life insurance coverage in place for a Gen X breadwinner in 2013 was $260,000, but the amount necessary to cover a Gen X breadwinner’s household needs was $708,996, leading to a gap of $448,996, according to a survey commissioned by New York Life.
In 2008, the shortfall came to $362,688. The 2013 survey was conducted by The Futures Group.
By comparison, the life insurance coverage gap in 2013 for baby boomers was $267,016, and for millennials $370,744, the survey found.
Chris Blunt, president of the insurance group at New York Life, said the life insurance gap is “a clear indication of what is at risk.”
Members of Gen X who face other financial obligations “are lacking a foundation of financial protection that life insurance provides,” Blunt said.
“The good news is that Gen Xers, who are in their prime earning years, are in a position to plug the gap.” Blunt added. “For the cost of a flat-screen TV, Gen Xers would be providing a key element of protection for their family.”
Smith said the survey reveals that many households are skimping too much on life insurance, and that isn’t a smart idea.
In the five-year period from 2008 to 2013, there has been a 35 percent decline in life insurance coverage in place for Gen Xers, from $400,000 to $260,000, the survey revealed; and the life insurance gap has an impact on more than half (56 percent) of all Gen Xers.
In addition, less than one in five (19 percent) Gen Xers said they have enough life insurance to cover everything they expect their insurance to pay for, which reveals a self-awareness of how exposed they are.
Gen Xers are very open to discussing risk, more so than they were before the recession. Financial advisors may not be aware of it, but Gen X households are offering financial experts an invitation to discuss risk with them as the recession taught them that risk was embedded in their lives to a much greater degree than they though, Smith said.
“Reading between the lines, the thing that impresses me the most is the resilience among consumers in the marketplace,” Smith said. “They are falling behind, on average, in terms of what they need in life insurance, but they are falling behind because they are trying to move forward in a positive direction and people are fully aware of the gaps.”
Notwithstanding concerns about finances and asset protection, the data reveal a “strong sense of moving past all of that,” Smith said. “There’s a strong sense of resilience and this determination to do things differently going forward.”
“In terms of financial needs, people are a lot more concerned these days about retirement-related issues,” Smith added. “That is income security, if you will. The financial crisis and the unemployment issues have put income security on the table for people.”
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].
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