Life insurance misconceptions: Any age or stage

If the past two years have taught us anything it’s that people feel more vulnerable than ever. We have faced unprecedented change and uncertainty, bearing witness the fragility of life in a global pandemic that has claimed the lives of millions worldwide. Meanwhile, provisional data released by the Centers for Disease Control and Prevention (CDC) shows American life expectancy dropped to 77.3 years in 2020 –– down 1.5 years from 2019, the largest one-year decline since World War II.

Life insurance is the most overlooked insurance in America but recent trends are showing a growing awareness of its importance, and LIMRA expects the U.S. life insurance market to grow between 7% and 11% in 2021.

Even though Americans generally recognize the value of life insurance, According to the 2021 LIMRA Insurance Barometer Study, 48% do not have life insurance, and many more do not have enough coverage. To further illustrate the problems with this gap, 42% of Americans say their household would face financial hardship within six months should a wage earner die unexpectedly — 25% would struggle financially within a month.

The benefits of life insurance

LIMRA’s study shows that there has been a major uptick in life insurance “interest” prompted by COVID-19, with almost 1 in 3 saying they are more likely to buy because of the pandemic.

COVID has certainly impacted life insurance claims but not necessarily shown us more Americans taking on life insurance. Why is that? The benefits of life insurance aren’t always clear for those who may not understand what life insurance covers and provides to beneficiaries:

• Covers funeral costs: The National Funeral Directors Association estimates a median funeral and burial cost in 2019 ranged between $7K and $9K.
• Averts debt burdens on loved ones: Parents may have cosigned on loans. Life insurance can help avoid loans going to your cosigner and leaving family members (young or old) with debt burdens.
• Protects mortgages and housing: Insurance can help your family cover housing costs without needing to downsize. A policy protects your loved ones from making rash decisions under duress during a difficult time.
• Other family expenses: Childcare and college are always a priority for parents. Life insurance can cover these expenses.
• Tax-free payouts to beneficiaries: One of the significant advantages to buying and receiving life insurance is that the payout made to beneficiaries is not subject to federal income tax. However, there are certain situations where life insurance proceeds may be subject to federal taxes.

Common misconceptions about life insurance

There are a number of misconceptions and beliefs that hold people back from making the investment in Life Insurance:

“It will be too expensive.”

Truth: There are cost options at every price point, and some coverage is better than no coverage at any age. Putting this into context, a $100,000 group term life insurance policy for someone who is 35 to 39 years old purchased through the workplace could cost $100 to $200 per year.

“I’ll buy life insurance later.”

Truth: Life insurance isn’t something you want to put off in the face of the unexpected. If it’s a matter of expense, most people can find a life insurance amount that fits their budget, and any coverage is better than none at all.

“I have enough coverage through my workplace.”

Truth: The belief that coverage from workplace employer-paid policies will offer enough coverage is not always the case. Employer-paid plans may cover up to a person’s annual salary, but that value just isn’t enough. Some may find it is not that expensive to buy additional coverage through their employer.

“I have money put away in savings to cover my family.”

Truth: This year, a study revealed that fewer than 4 in 10 people have enough savings to pay for an unexpected $1,000 expense in cash. Even with personal savings of three months to one year of a person’s salary will not likely be enough depending on specific circumstances: funeral costs, loss of income, housing, children, college, elderly dependents, and more.

How much life insurance is enough?

There are a number of online calculators to help estimate how much life insurance to purchase. People should purchase as much life insurance as they can afford. And it’s important to continue educating the public on the importance of buying early. For example, in the group term life insurance market, if life insurance is purchased at a younger age and the individual provides evidence of insurability (EOI), or evidence of good health, at that time, they may be able to increase coverage incrementally over time without having to answer health questions later on.

They can purchase a small amount of coverage right away and increase coverage slowly during open enrollment. Having already provided EOI, these incremental increases can take place without having to provide evidence later on.

Any age is a good age to purchase life insurance coverage to protect your family. It is a necessity for protecting loved ones financially and is one of the most critical and final acts of love we can offer our families. Life insurance brings peace of mind that cannot be understated for those who have asked themselves, “What would happen to my loved ones if something unexpected happened to me?”

Jennifer Gassaway is a senior product manager with Standard Insurance Company. She is responsible for product planning and marketing for The Standard’s group term life insurance product. She holds a Bachelor of Arts degree from Grinnell College and a Master of Business Administration from the Robert H. Smith School of Business at the University of Maryland.