While four in five employees today believe their life insurance coverage is adequate, 45 percent of working women and 28 percent of working men with life insurance haven't evaluated their needs since obtaining their first policy, potentially leaving themselves and their families financially vulnerable in the event of a premature death. This is all according to MetLife's 2011 Insurance Literacy Study, released today.
Working women with life insurance are also nearly twice as likely as men (21 percent vs. 12 percent) to acknowledge they don't know how much coverage they have and are also more likely to underestimate how much coverage might be needed. While a good starting place for life insurance coverage is typically outstanding debt plus five years of salary, 54 percent of women and 47 percent of men believe coverage equal to outstanding debt and only three years of salary or less will be adequate. The study also found that only one in four men or women considered outstanding debt when calculating their life insurance needs yet 52 percent want their death benefit to cover these obligations.
Gender expectations
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Men and women have different desires for what they want their insurance policies to cover. Nearly three-quarters (73 percent) of married men say their number one expectation for their life insurance coverage is to pay for future living expenses for their spouse, compared to 47 percent of married women. For married women, the number-one expectation is to cover their final expenses (69 percent versus 55 percent of married men). However, both married men and women express nearly identical levels of interest in protecting the financial futures of their children.
"Honestly assessing your expectations for your life insurance policy is an important step to ensuring you have the right amount of coverage," says Todd Katz, executive vice president, U.S. Business, MetLife. "There's a significant difference between having enough coverage simply to pay for final expenses and also having enough coverage to meet the ongoing needs of a family with children."
Women shouldn't only consider life insurance coverage on themselves to protect loved ones, but also encourage spouses or partners to have coverage as well, says Cindy Hounsell, President of the Women's Institute for a Secure Retirement. "Otherwise, the sudden loss of vital income may have a long-term negative impact for the survivor well into retirement."
Policy features to match needs
The study found that more than one out of four are unfamiliar with the basic features of their own insurance policies. For example, nearly a quarter (24 percent) of employees who say they have term life insurance believe this coverage offers financial protection for an unlimited amount of time.
In fact, term insurance often offers financial protection for a defined time period such as 10, 15, or 20 years, or if provided through an employer-maintained group policy, for the duration of employment. At the end of these time periods, the term coverage typically may be continued, but usually with much higher premiums. Additionally, 28 percent of those employees who own permanent life insurance are unaware that this coverage can build cash value as they pay their premiums. Permanent life insurance policies can be used to accumulate, protect and transfer wealth. Term policies are an easy and cost-effective way to get life insurance protection in the relatively short run.
Employees may also not be leveraging life insurance as effectively as they could to meet their needs. Approximately one-third of employees with coverage do not realize life insurance, in addition to a death benefit, can be a strategic method to supplement retirement benefits and aid in estate planning.
"As a first step, people should familiarize themselves with their employer's life insurance benefit," Katz says. "There may be living benefits available such as will preparation or powers of attorney in addition to beneficiary assistance with estate resolution. However, don't assume that what you have at work is enough. Take time to fully understand your needs and supplement your workplace coverage as needed. Getting the right amount of insurance coverage is less expensive and less complicated than many think. Making use of coverage calculators and trusted advisors can help."
MetLife's study consisted of 500 telephone interviews between June 22 to July 1 of employed adults who have life insurance.
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