Do Americans Lack Enough Life Insurance Protection?

under insured

Do you feel you carry enough life insurance protection to fully cover your family in the event of an unexpected tragedy? According to a recent study conducted by Ipsos Public Affairs, many Americans are concerned they don’t have the financial protection they need.

So how does a family determine how much protection is truly necessary in the event of an unexpected loss?

Over Half of Americans Feel Under-Insured

The Ipsos Public Affairs report, sponsored by New York Life Insurance Company, revealed 53 percent of those surveyed (1,000 adults aged 30 and older) feel they are financially under-protected in terms of having money in savings accounts, emergency funds or life insurance policies. An additional 19 percent said that are severely under-protected.

Setting money aside for long-term financial obligations can be difficult, especially when saving for small emergencies alone is challenging. A separate survey conducted by The National Foundation for Credit Counseling (NFCC) revealed in August that a whopping 64 percent of Americans didn’t have even $1,000 in their savings accounts to cover emergency expenses.

Even more proof that families are not prepared for the worst is found in a study conducted by LIMRA in Dec. 2010–the number of households with life insurance had reached a 50-year low. At the time of the study, 11 million households with children under the age of 18 had no life insurance coverage.

One consistent worry that heads of households face is how their families will be able to take care of bills, pay for food and shelter and even cover funeral expenses if they die. Among the various forms of financial protection available, life insurance is usually the most affordable route, simply because it allows policyholders to pay a small amount each month in exchange for the promise of thousands in financial protection.

So why don’t people who feel under insured purchase life insurance? According to the LIMRA study, some reasons may include the struggling economy (40 percent of recipients hadn’t placed insurance as a financial priority) and a low number of available agents (80 percent of families don’t have personal life insurance agents or brokers to assist them).

Procrastination was also given as a reason that families fail to purchase insurance even when they realize they have no other financial protections in place. What can be done to get families on the right track?

How to Get Adequate Family Protection

Two major roadblocks in the way of families acquiring the life insurance protection they need is finding the right coverage, followed by making sure they have enough coverage to pay all debts following a death.

For many, the first decision comes down to whether a family could benefit more from a permanent life insurance policy or term policy. Coverage options that fall into the permanent category include variable, whole and universal insurance. They provide policyholders with coverage until death as long as they pay the monthly premium.

Term policies, on the other hand, are set to cover a policyholder over a predetermined number of years. Once those years have passed, the policy automatically terminates unless renewed by the policyholder.

So how do you determine whether you should purchase term vs permanent life insurance?

There are a number of variables to consider, but a shorthand guide is to think in terms of investment. If you know that you want to incorporate investments into your life insurance experience and are prepared to pay more per month, permanent may be the way to go.

However, if you want a straightforward policy that will pay out a specified amount–no more, no less–a term policy is the route to take.

As for the right amount of coverage to purchase, this depends on your projected financial needs. Here are just a handful of factors to help you determine how much coverage is enough:

  • Your annual income
  • Annual expenses of the household
  • Whether your spouse will work and how long he/she will need to provide for your children
  • The amount of debt you’ll need to pay off
  • Estimated funeral costs

Additional factors include child care needs (ex. day care expenses), continuing education for your children and whether your family will plan to remain in your home after you’re gone.

One thing’s for sure, whether you’re single or married, have dependents or only a few bills that might be left behind if you pass on tomorrow, no one should be left with the financial burden. So if you don’t currently have a life insurance policy and no other substantial form of family protection to pay for expenses, you are indeed considered under insured and need to work toward acquiring coverage today.