According to a recent survey by LIMRA and Life Happens, if faced with the loss of an income-earner, 35 percent of U.S. households would experience financial adversity within one month. Almost half would face financial hardship within one year.
Clearly, adequate life insurance coverage would address that problem. But less than 60 percent of Americans have coverage. And most of those with coverage don’t have enough.
The same survey also found that, despite the obvious need, Americans pay less attention to mortality-related financial concerns than health coverage or attaining savings goals. Inevitably, life insurance ends up at the bottom of their ‘hierarchy of financial needs,’ too often dropping off altogether. How can something so important be so easily ignored?
One reason is that thinking about the purpose of life insurance – financially protecting our families in the event of our death – isn’t very pleasant. So too many of us avoid the subject entirely, unless we’re forced to confront it and it’s too late.
Occasionally it takes a negative or even tragic life experience, such as the passing of a loved one, to trigger an assessment of our life insurance needs.
A recent study published in the Journal of Behavioral and Experimental Finance supports this. Using the National Longitudinal Survey of Youth, the study finds that people who experienced the death of a parent or child are 1.4 times more likely to buy a life insurance policy than those who don’t experience a similar death.
By controlling for other factors, the authors show that this increase is attributable to the sudden greater awareness of the need for life insurance. In other words, it’s a very sad and unpleasant ‘wake-up-call.’
Fortunately, the life events that compel us to think about life insurance are usually positive: the birth of a child, getting married, buying a first home, or starting a new job. Each represents a new beginning, greater responsibility, and personal growth.
In good times and bad, life insurers stand ready to help consumers at every stage of life find the financial protection they need for their families.
Andrew Melnyk is Vice President, Research and Chief Economist at the American Council of Life Insurers (ACLI). He holds a doctorate in economics and is a Certified Business Economist. His functions at ACLI include authoring white papers; managing the production of statistical publications; and managing ACLI’s Research Department. Prior to joining ACLI in 2005, he held positions in academia, government, and the private sector, both in the U.S. and abroad.
