Studies look at how consumers value life insurance – or don’t

By Ayo Mseka

Ironically, when it comes to buying life insurance, 92% of those who have purchased a policy believe it is worth the expense, while nearly half of those who don’t have life insurance have hesitated because of the monthly premium cost.

This according to a survey by Assurance on what Americans think about life insurance. According to the survey:

Nearly 1 in 4 Americans (23%) with life insurance wish they had purchased life insurance sooner.
92% of Americans with life insurance believe that their life insurance policy is worth the cost.
55% of Americans without life insurance said that they plan on getting it in the future.
The biggest reason Americans without life insurance are hesitant to purchase it is the cost of the monthly premiums (45%).

Another reason Americans without a life insurance policy hesitate to buy it is their lack of knowledge about policy options (16%), the survey said. Only 15% of policyholders surveyed said they completely understand their policy.

Nearly half (46%) of policyholders said they didn’t understand the difference between term life and permanent life insurance. Despite these potential barriers, 55% of Americans without life insurance plan on purchasing it in the future.

Common myths and misconceptions

One of the biggest misconceptions is that the buyer needs to be older to get the most out of a policy. The average age people without coverage say one should start to consider purchasing a policy is nearly 40 – more a decade older than the average age the survey’s policyholder population was when they purchased their first policy.

Another commonly held belief is that the policies aren’t worth the cost. About 40% of Americans without coverage surveyed would agree. However, given the living benefits that many permanent policies offer (like illness riders and the ability to borrow against the policy’s cash value), it should be no surprise that 93% of policyholders disagree with that sentiment, the survey said.

Eight out of 10 (82%) Americans without life insurance think that people who have policies don’t fully understand them. When asked if they knew how their life insurance policy works, only 57% of Americans said yes.

Additional reasons Americans are not buying

The 2023 Insurance Barometer Study, conducted by LIMRA and Life Happens, echoes some of these sentiments. According to the study, one quarter of American adults said that a major reason they haven’t purchased the coverage they said they need is because they don’t know what to buy or how much they need, said Alison Salka, senior vice president, head of LIMRA research. Financial professionals should know that the need for life insurance is the highest it’s ever been, Salka said. More than 100 million Americans say they need, or need more, life insurance.

“Our research suggests the biggest obstacle to purchasing life insurance is lack of knowledge,” Salka said. “Consistently, the number one reason consumers give for not buying life insurance is that they think it is too expensive. Yet most overestimate the cost threefold. This is higher for younger adults.”

Getting more consumers to buy more life insurance

This is where financial professionals are critical, Salka said. Increasingly, people research about insurance online but ultimately want to work with a financial professional to purchase coverage.

“Our latest research demonstrates the positive effect financial professionals can have on consumers looking to buy life insurance,” Salka added. “According to LIMRA’s 2022 Purchase Funnel study, just 8% of consumers who engage a financial professional while evaluating life insurance quotes decline to buy a policy because of the expense, compared with 44% who go it alone.”

Financial professionals also need to have robust social- media profiles to engage and educate consumers – particularly younger adults, Salka added.

LIMRA’s research shows that 6 in 10 young adults seek financial information and recommendations on social media; so, financial professionals need to reach them where they are.

Another LIMRA study of experienced advisors shows that financial professionals understand the need to expand how they approach and educate prospects and clients, Salka added. While fewer than half of experienced advisors surveyed said they currently use social media, two thirds expect to use it within the next three years.

Financial professionals can also help people determine the amount of insurance they need based on their financial goals, Salka said. For example, she asked, “do their clients want the coverage to help their loved ones with funeral/burial expenses, help their family replace their income should they die, pay the mortgage or rent, fund their child or children’s education, or leave an inheritance?”

Why people buy life insurance

In the latest Barometer study, Salka said, the top major reasons people give for having life insurance are:

 Cover burial/final expenses – 59%

 Leave an inheritance – 41%

 Help pay off mortgage – 35%

 Help replace lost income should the wage earner die – 31%

 Supplement retirement income – 22%

“Ultimately, financial professionals are key to building the relationships and educating consumers so they take the steps to purchase the coverage they need to protect their loved ones’ future financial security,” Salka said.

To find out Americans’ knowledge and perceptions of life insurance, Assurance conducted a survey of more than 1,000 Americans in March 2023. The survey population consisted of equal numbers of Americans with and without life insurance.

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].

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].