LIMRA: Individual Life Ownership at 50-Year Low; Term Life Affordable Amid Price Increases

Only 44% of U.S. households own an individual life insurance policy -- a figure that represents a 50-year low, a new study by LIMRA shows.

Today, 30% of households -- or 35 million -- have no coverage, up from 22% of households in 2004, LIMRA said.

At a time when finances are tight and the job market and the economy are struggling, "having the protection of life insurance is more important than ever," said Catherine Theroux, a spokeswoman for the Windsor, Conn.-based LIMRA.

The study found that four in 10 U.S. households with children would have difficulty paying bills if the main breadwinner died today.

Most American families have less money to rely upon as a financial cushion than before the economic downturn began in 2008, LIMRA noted. More than 40% of Americans said a major reason they have not bought more life insurance is because they have other financial priorities right now, such as paying off debt or saving for retirement, Theroux said.

Among households with children younger than 18, 11 million have no life insurance, the research organization found.

"A majority of families either have no life insurance or not enough, leaving them one accident or terminal illness away from a financial catastrophe for their loved ones," said Robert Kerzner, president and chief executive officer of LIMRA, LOMA and LL Global, in a statement.

Term life is one of the most popular products for young families and the middle-income market, Theroux said. For the study, the middle-income market is defined as U.S. households with income ranging from $35,000 to $99,999 a year, she said.

Total second-quarter U.S. sales of individual life insurance -- measured in new annualized premium -- rose 7% from the same period in 2009, marking the second straight quarter in which sales increased from the prior year, according to LIMRA.

Term life, however, was the only product whose premium didn't increase year over year (BestWire, Aug. 27, 2010). New annualized premium declined 11% and was down 7% year-to-date. "We have not seen term show a drop in sales of this magnitude since 2001," LIMRA said

According to a recent column by executives at Swiss Re Life & Health America, after 15 years of sharp price declines, term insurance premiums began to rise in 2009 (Best's Review, April 2010). Through August 2009, the premium for a $500,000 policy for a 35-year-old man with a rate guaranteed for 20 years rose 5% on average, and the premium for a policy with a 10-year guarantee was up 6%.

Some leading companies raised term insurance premiums by as much 10% to 15% last year, and others have stopped writing long-term business.

Two factors are fueling the current rise in term insurance prices are reserve requirements and fallout from the financial crisis, according to the executives at Swiss Re (Best's Review, April 2010).

Theroux, however, said term life insurance is less expensive today than it was 20 years ago. For example, a 30-year $100,000 term life policy for a 40-year-old man could cost $193 a year or around $16 a month, she said.

For the first six months of 2010, total individual life sales were up 9% when compared with the first half of 2009 -- a period that experienced "the steepest six-month drop in individual life insurance sales in almost 70 years," according to Ashley Durham, LIMRA's senior analyst for product research (BestWire, Aug. 27, 2010).

(By Fran Matso Lysiak, senior associate editor, BestWeek: fran.lysiak@ambest.com)