Consumer misunderstanding may contribute to life insurance coverage gap

While many Americans have a good understanding of key life insurance principles, nearly 6 in 10 either do not have coverage or do not know if they do, according to the 2024 Corebridge Life Insurance Insights & Awareness Survey. Misunderstandings around cost could help explain this life insurance coverage gap.

While 8 in 10 (80%) Americans correctly recognize that the most affordable time to buy life insurance is when they are young and healthy, the number one reason keeping individuals from buying life insurance is cost, with nearly half (45%) of those who do not have coverage saying that cost was a reason they have not yet purchased a life insurance policy.

At the same time, the survey added, many Americans do not appear to have a clear picture of how affordable life insurance is. Only about 1 in 10 could correctly identify the approximate monthly cost for a healthy 30-year-old to get a 20-year $250,000 term life insurance policy. The price for this example policy is typically around $15 per month,1 but 16% expect the price to be more than triple this amount, another 16% expect it to be more than double, and 41% are not sure.

“Life insurance is a cornerstone for a secure financial plan, but misperceptions around cost deter too many people from making this important protection a part of their overall strategy,” said Tim Heslin, president of Life Insurance at Corebridge Financial. “Regardless of your stage in life—whether you’re getting married, starting a family, sending a child off to college, or preparing for retirement—it’s important to evaluate your life insurance needs so you can help protect your loved ones and help secure your financial future.”

Determinants of life insurance ownership

One key determinant of whether someone has life insurance is if those they love are insured, the survey said. This is particularly true for individuals whose spouse has a life insurance policy, as well as for those who are listed as a beneficiary on a life insurance policy. According to the survey, nearly half (49%) of those whose spouse has a life insurance policy have purchased their own coverage, compared to just 10% of those whose spouse does not have a life insurance policy. Similarly, 43% of respondents who are listed as a beneficiary on someone policy have purchased their own coverage, compared to 15% of those who are not listed as a beneficiary.

Strong understanding of life insurance

The research also identified areas where Americans have a strong understanding of important life insurance concepts. When presented with a series of true or false questions, most respondents answered questions about the following correctly:

• Converting term life insurance to permanent life insurance – 72% correctly answered that a term life insurance policy can be converted to a permanent one before the end of the policy. Converting term life insurance to a type of permanent insurance is relatively easy and does not typically require a medical exam, even if your health has declined.
• Living benefits – 72% correctly answered that life insurance can provide benefits while you’re living. Permanent life insurance policies can offer features that may create a lifetime income stream, give you tax-free2 access to available cash value, or help you financially deal with life’s challenges.
• Leaving a legacy – 71% correctly of respondents answered that life insurance can be used to leave a donation to charity. While many will name their loved ones as beneficiaries, other options include using your policy’s death benefit to honor your school, give to a hospital important to your family, or help another cause that you are passionate about.
  Room for improvement

While the survey found that the most prevalent misunderstanding about life insurance is overestimating its cost, it also revealed that Americans have an opportunity to learn more about the differences between term life insurance and permanent life insurance, and the specific benefits that these different types of coverage can provide:

• Death benefit amount is not always fixed – 61% incorrectly answered that the payout at death for all life insurance was fixed at time of purchase and does not change. While term life insurance policies generally set a fixed level for the death benefit, for many permanent policies the death benefit can change over time, as a result of policy owner choices. For instance, individuals with a permanent life insurance policy will see their death benefit change if they take out additional coverage, or if they make withdrawals or use policy loans from the cash value to help meet other financial goals or needs.
• Permanent policies can build cash value, not term – 60% incorrectly answered that term life insurance allows the policyholder to build cash value. This feature is available with permanent life insurance, where a portion of the premium may go toward building cash value that can grow over time as you earn interest and make premium payments.
• Premiums are level for term but not always for permanent life insurance – 49% incorrectly answered that premiums increase every year with most term life insurance policies. In most cases, premiums do not change across the term period of such a policy; however, certain permanent policies, such as universal life insurance, have flexible premiums that allow the policyholder to pay more or less, depending on, for example, their goals for growing the cash value of the policy, premiums increasing as they age, or whether the cash value has grown enough to partially or fully pay for the policy.

What benefits are important to consumers?

When asked to consider which life insurance benefits are important for their overall financial plan, Americans found value in both the death benefit, as well as the additional living benefits that permanent life insurance features. Nearly 6 in 10 (58%) said leaving money to their loved ones when they die so they can maintain their lifestyle would be an important part of their financial planning. Further, 71% of respondents cited one or more of permanent life insurance's several living benefits as valuable to their financial plan, such as access to the cash value of life insurance, help in providing a supplementary retirement income stream, or help in financially dealing with life’s challenges.

How agents deal with cost objections

So how do some agents deal with the cost objections they sometimes get from their prospects when trying to sell them life insurance?

“As a life insurance expert, I'm always surprised by the number of people who think life insurance is much more expensive than it actually is,” said Robert Cullen, MDRT member and Farmers Insurance agent in King City, California. As such, he said, one of the initial questions he asks a potential client is how much they'd like to budget for the peace of mind they get from securing life insurance for their family.

“If they give me a number that is really high, or if they don't give me a number, I start with giving them an example that they can relate to. For example, I might say: "For the cost of getting a drink at Starbucks once per week, I can set you up with a Life Insurance plan".

According to Cullen, the other important distinction that can be made is to point out the difference between term and permanent life insurance. Though permanent life insurance may "cost" more, it builds cash value.

“I compare a cash value life policy to a separate bank account that you set up to save money for a large purchase,” he said. “You wouldn't say: "Look at how expensive my bank account is". You'd say: "Look at how much money is in my bank account". The same thing applies to a permanent life policy. Though it "costs" more, it builds value and is an asset on your personal balance sheet.”

The Corebridge  survey was conducted online by Morning Consult on behalf of Corebridge Financial between June 18 - June 20, 2024, among a national sample of 2,204 adults.

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Ayo Mseka has more than 30 years of experience reporting on the financial services industry. She formerly served as editor-in-chief of NAIFA’s Advisor Today magazine. Contact her at [email protected].