Survey: 1 in 5 Americans who plan to pass down debt are uninsured

More than 20% of American adults who plan to leave unpaid debt behind for their loved ones to inherit do not have life insurance coverage, according to a new survey from Policygenius.

The study found that just under 50% of Americans expect their spouses, children or parents to have to cover their debt when they die.

Meanwhile, the Federal Reserve Bank of New York has reported that U.S. household debt is up to $17.29 trillion as of Q3 2023, with an average of $100,000 in debt per household.

Myles Ma, certified personal financial counselor at Policygenius, said the study underscores the need for life insurance and other financial tools that can help mitigate inherited debt.

"The finding that roughly one in five people who expect to pass down debt don’t have life insurance shows a clear need for life insurance and financial planning in general," he said.

'Financial avoidance'

The Policygenius 2024 Financial Planning Survey found 46% of Americans believe "that if they died today, their loved ones would inherit their debt."

The company emphasized the value of life insurance as "one way to cover shared debt in the event that one of the co-signers dies."

However, 21% of respondents said they do not have life insurance. Another 5% said they do not know whether their household has life insurance coverage.

Most respondents (38%) said at least one adult in their household has group life insurance through an employer.

Twenty-nine percent and 26% respectively said they have either an individual term life or whole life insurance policy, while 13% had multiple forms of coverage.

Ma said the results suggest "a strong prevalence of financial avoidance" among American adults.

"Death and debt are unpleasant to think about, so people don’t consider how they’ll deal with them," he said. "But that doesn’t make them go away."

Ma urged financial professionals to "contend with their clients’ fears around this subject" to help them adequately help their family members manage inherited debt.

"It may be unpleasant for people to think about these topics, but advisors can emphasize that doing so will ultimately make things easier for their clients’ loved ones," he said.

Millennials, parents most likely to pass on debt

Policygenius also found "expecting to pass down debt is strongly associated with having kids."

"Sixty percent of Americans living with children (including adult children) say their loved ones would need to pay their debts if they died today, compared to just 38% of those who don’t live with any children, regardless of age," the survey noted.

Likewise, 52% of millennials, aged 27-42, expect to leave debt behind if they died today. This was mostly associated with student debt, which the Federal Reserve recorded as exceeding $1.7 trillion across the U.S. as of Q3 2023.

Additionally, more than 20% of both parents and millennials were found to view life insurance "mainly as a way to invest and grow money" rather than primarily as a way to provide for dependents in the event of their death.

In contrast, baby boomers, aged 59-77, were less likely to say their loved ones would need to pay off their debts.

Just 43% of baby boomers expect to leave debt behind for their loved ones, which Policygenius suggested is likely because they have had more time to clear their debt.

Millennials may be most in need of coverage

Although parents and millennials shared a similar view of life insurance as an investment vehicle rather than a form of protection, most parents surveyed were insured.

"Among those living with children and with debt to pass down, 82% live in households with life insurance coverage, indicating that many have a plan for helping their loved ones cover their shared debts if they die," Policygenius found in its survey.

However, Ma suggested that millennials could be one of the demographics most in need of life insurance.

"Millennials may have an even greater need for life insurance than other generations," he said. "Not only are they at an age when they could be supporting children, but 17% of them expect their loved ones to cover student debt if they die — student debt they may have co-signed with parents."

This is an area where more of an effort could be made to educate American adults and millennials in particular about the benefits of life insurance, he suggested.

"What millennials could stand to hear is that one, life insurance is more affordable than you think, especially if you buy it when you’re young and healthy and two, you’re buying peace of mind over the length of the policy," Ma said. "That’s worth a lot! Millennials need peace of mind."

For this study, Policygenius commissioned public opinion and data company YouGov to survey more than 4,000 American adults in October 2023. Results were weighted to represent the entire population of U.S. adults.

Rayne Morgan is a content marketing manager with PolicyAdvisor.com and a freelance journalist and copywriter.

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