Misunderstandings around cost contribute to the life insurance coverage gap

HOUSTON – August 14, 2024 – According to new research from Corebridge Financial, many Americans have a good understanding of key life insurance principles, yet nearly 6 in 10 either do not have coverage (50%) or do not know if they do (9%).

Misunderstandings around cost could help explain this life insurance coverage gap. While 8 in 10 (80%) Americans correctly recognize that the most affordable time to buy life insurance is when they are young and healthy, the number one reason keeping individuals from buying life insurance is cost, with nearly half (45%) of those who do not have coverage saying cost was a reason for why they have not yet purchased a life insurance policy.

At the same time, many Americans do not appear to have a clear picture of the affordability of life insurance. Only about 1 in 10 (11%) could correctly identify the approximate monthly cost for a healthy 30-year-old to get a 20-year $250,000 term life insurance policy. The price for this example policy is typically around $15 per month,[1] but 16% expect the price to be more than triple this amount, another 16% expect it to be more than double, and 41% are not sure.

“Life insurance is a cornerstone for a secure financial plan, but misperceptions around cost deter too many people from making this important protection a part of their overall strategy,” said Tim Heslin, President of Life Insurance at Corebridge Financial. “Regardless of your stage in life—whether you’re getting married, starting a family, sending a child off to college, or preparing for retirement—it’s important to evaluate your life insurance needs so you can help protect your loved ones and help secure your financial future.”

Life insurance runs in the family

One key determinant of whether someone has life insurance is if those they love are insured. This is particularly true for individuals whose spouse has a life insurance policy, as well as for those who are listed as a beneficiary on a life insurance policy. Nearly half (49%) of those whose spouse has a life insurance policy have purchased their own coverage, compared to just 10% of those whose spouse does not have a life insurance policy. Similarly, 43% of respondents who are listed as a beneficiary on someone else’s policy have purchased their own coverage, compared to 15% of those who are not.

Testing well on life insurance basics

The new Corebridge Life Insurance Insights & Awareness research identifies where Americans have a strong understanding of important life insurance concepts. When presented with a series of true or false questions, a majority of respondents answered questions about the following correctly:

• Converting term life insurance to permanent life insurance – 72% correctly answered that a term life insurance policy can be converted to a permanent one before the end of the policy. Converting term life insurance to a type of permanent insurance is relatively easy and does not typically require a medical exam, even if your health has declined.
• Living benefits – 72% correctly answered that life insurance can provide benefits while you’re living. Permanent life insurance policies can offer features that may create a lifetime income stream, give you tax-free[2] access to available cash value, or help you financially deal with life’s challenges.
• Leaving a legacy – 71% correctly answered that life insurance can be used to leave a donation to charity. While many will name their loved ones as beneficiaries, other options include using your policy’s death benefit to honor your school, give to a hospital important to your family, or help another cause you are passionate about.

Room to learn about different types of life insurance

While Corebridge Life Insurance Insights & Awareness finds the most prevalent misunderstanding about life insurance is overestimating cost, the new research also reveals that Americans have an opportunity to learn more about the differences between term life insurance and permanent life insurance, and the specific benefits that these different types of coverage can provide:

• Death benefit amount is not always fixed – 61% incorrectly answered that the payout at death for all life insurance was fixed at time of purchase and does not change. While term life insurance policies generally set a fixed level for the death benefit, for many permanent policies the death benefit can change over time, as a result of policy owner choices. For instance, individuals with a permanent life insurance policy will see their death benefit change if they take out additional coverage, or if they make withdrawals or use policy loans from the cash value to help meet other financial goals or needs.
• Permanent policies can build cash value, not term – 60% incorrectly answered that term life insurance allows the policyholder to build cash value. This feature is available with permanent life insurance, where a portion of the premium may go toward building cash value that can grow over time as you earn interest and make premium payments.
• Premiums are level for term but not always for permanent life insurance – 49% incorrectly answered that premiums increase every year with most term life insurance policies. In most cases, premiums do not change across the term period of such a policy; however, certain permanent policies such as universal life insurance have flexible premiums that allow the policyholder to pay more or less, depending on, for example, their goals for growing the cash value of the policy, premiums increasing as they age, or whether the cash value has grown enough to partially or fully pay for the policy.

“When people think about life insurance, it’s the protection that life insurance provides for loved ones that typically first comes to mind, and rightly so,” said Heslin. “Permanent life insurance can offer a broad range of benefits that go beyond passing money down to your beneficiaries, and Life Insurance Awareness Month is the perfect time to take action and familiarize yourself with everything life insurance can offer. Meeting with a financial professional or insurance agent is a smart first step to help you understand the nuances between different types of coverage so you can select a policy that fits your needs and can become foundational to your financial plan.”

When asked to consider which life insurance benefits are important for their overall financial plan, Americans found value in both the death benefit as well as the additional living benefits that permanent life insurance features. Nearly 6 in 10 (58%) said leaving money to their loved ones when they die so they can maintain their lifestyle would be an important part of their financial planning. Further, 71% of respondents cited one or more of permanent life insurance's several living benefits as valuable to their financial plan, such as access to the cash value of life insurance, help in providing a supplementary retirement income stream, or help in financially dealing with life’s challenges.

During Life Insurance Awareness Month this September, Corebridge Financial will be encouraging more people to take action to improve their life insurance knowledge and learn how life insurance can play a role in their financial planning. Additional insights on Corebridge Life Insurance Insights & Awareness and other life insurance topics can be found at Corebridge Insights & Education.

Methodology

The 2024 Corebridge Life Insurance Insights & Awareness survey was conducted online by Morning Consult on behalf of Corebridge Financial between June 18 - June 20, 2024, among a national sample of 2,204 adults.