The life insurance gap: Where it exists, why it persists

As Americans recover from the pandemic and continue to face high inflation and growing debt, more Americans are feeling nervous about their long-term finances.

And it’s not just lower-income or middle-class households – a recent Bloomberg survey of wealthy Americans revealed that high earners also don’t feel as though they are well off.

In addition to economic factors such as inflation or the threat of recession, a significant hole in many Americans’ financial planning contributes to this sense of insecurity: insufficient life insurance coverage.

According to LIMRA’s 2023 Insurance Barometer study – an annual survey that tracks attitudes and perceptions about insurance – about 101 million people (41% of U.S. adults) say they either need life insurance or they need more life insurance coverage.

Where the life insurance gap exists

There has long been an “insurance gap” among Black and Hispanic Americans, women and young people. But this gap rose sharply in 2020 and hasn’t declined since, according to the latest Insurance Barometer study. The gap is highest among households earning under $50,000 per year, Hispanic and Black Americans, millennials, Generation Z and women.

Gen Z, according to the Barometer study, is interested in life insurance but is not interested in purchasing it, with nearly half reporting a coverage gap. People tend to become interested in life insurance as they age and settle down, which is why the gap may be smallest with the baby boomer generation.

Why the gap persists

Despite the number of Americans who say they want to buy life insurance, there are three major reasons why American adults don’t get it, according to the study.

• People believe it’s too expensive – only 24% of people surveyed correctly estimated the cost of a policy.
• People have other financial priorities.
• People don’t know how much insurance they need or what kind of insurance to buy.

These perceptions may prevent millions of people from financial security, and the study affirms this: 69% of life insurance owners reported feeling financially secure, compared to only 49% of non-owners.

The role of advisors in bridging the gap

Advisors can play a significant role in educating people and helping them see that this protection is an affordable, attainable goal. Life insurance should be a fundamental part of any holistic financial plan – it’s important protection for your clients and their loved ones against the unexpected.

Here are some recommendations to address customer concerns and show clients the potential benefits of life insurance.

Review your client's financial plan to understand their goals and finances. Get a comprehensive picture of your client’s overall financial house, including savings, debt and other issues. After you have a picture of both their financial house and their long-term goals, identify the gaps and determine what amount and type of life insurance protection make sense for their situation.

Make it clear that life insurance is the foundation of a solid financial house. We know that clients should have a mix of investments, debt management plans and an emergency fund – but life insurance helps ensure the overall structure is sound. Use a needs-based calculator to show your clients how adequate coverage can help protect their families after death or disability.

Educate clients on the different types of insurance. Clients need to know they have options and there is a policy that’s right for them. A young single adult might want to buy a policy with a cash surrender value while such a policy is still inexpensive, while a young family might want a term life policy that lasts until the children are out of the house.

Show that the benefits of life insurance go beyond just protection. Depending on the policy, life insurance can serve as an income replacement, a tax-efficient inheritance or cash in retirement. The right policy completes a holistic financial plan, both for the policyholder and beneficiaries.

Highlight the benefits of purchasing a life insurance product while you’re young. Educate clients that starting younger can mean locking in lower premiums and a higher rate of insurability.

Helping those in the life insurance gap find security

For many people, life insurance seems complicated and expensive. However, with the right advice and education, solid coverage can provide people – especially those in the “insurance gap” – with financial security and peace of mind.

Steve Sperka is vice president of solutions design and implementation at Thrivent. Contact him at [email protected].

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