Why Life Insurance Must Be A Key Element in Any Financial Strategy

By Steve Rueschhoff and David Levenson

The COVID-19 experience has made it clear that life is fragile - physically, emotionally and financially. For many Americans, the pandemic has been a wake-up call, a trigger to reexamine the financial strategies they have created to prepare for the unexpected. Life insurance must be an essential piece of those strategies.

People understand how important life insurance is, however. According to LIMRA and Life Happens, 42% of families said they would face financial hardship within six months if the primary wage earner in the family died. For 25%, the crunch would come much faster — within one month.

Yet there is a disconnect between what Americans understand and what they have done about it. In 2021, only 52% of Americans had life insurance coverage, a significant decline from 63% in 2011. LIMRA research finds that there are an estimated 60 million uninsured and underinsured households in this country, with an average coverage gap of $200,000. This gap reveals the difference between the amount of insurance households actually have versus what they need.

For women, the picture is especially troubling. According to the 2021 Insurance Barometer Study, only 46% of women own life insurance compared to 58% of men. The same study found that the percentage of women with life insurance has declined for five straight years.

Here again, the pandemic played a role. Women were hit hard by COVID-19 because they were forced to juggle their responsibilities at work and at home, particularly when it came to caring for children who couldn’t go to school or daycare. The result: many lost jobs and a decrease in insurance coverage. Industry figures show that more than 18 million women lost their life insurance coverage in 2020, with more than one-third saying it was due to an unplanned job loss.

When asked, people offer a variety of reasons for remaining uninsured. Upon examination, many of the reasons are based on myths. some believe that life insurance is too expensive. In fact, half of Americans overestimate the cost by threefold. The truth is, many insurance products, such as term life insurance, are quite affordable. Furthermore, life insurance costs rise with age, so generally speaking, the earlier you purchase life insurance, the better.

Others believe that the life insurance they have through their employer is adequate. That may be the case, but there are two caveats to consider: First, coverage through such plans may be insufficient for the need and second, the policies are not necessarily portable. If you leave or lose your job, you might lose your coverage.

Financial advisors can help their clients separate fact from fiction when it comes to insurance. They can also help simplify this process that some people find confusing and taxing. A financial advisor can match a client with the right policy and the right amount of coverage.

Surveys show that COVID-19 has heightened awareness about the importance of life insurance. In fact, one-third of Americans said the pandemic was the primary reason they began shopping for life insurance. Now is a good time to turn those intentions into actions. If COVID-19 taught us anything, it is that the future is unpredictable and sometimes frightening. Being ready for what may come is the right way to protect those who matter most to us.

Steve Rueschhoff is principal, managed investments and insurance, with Edward Jones. Steve may be contacted at [email protected]

David Levenson is president and CEO of LIMRA, LOMA and LL Global. David may be contacted at [email protected]