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7 Reasons Why People Don't Buy Life Insurance -- And Why They're Misguided

why people dont buy life insurance

Lots of people agree on the importance of life insurance. But it’s something that many of us don’t own, as research indicates.

According to LIMRA, a financial research group, 30% of U.S. households owned no life insurance at all in 2016. About 48% of households, or 60 million families, had an insurance gap that averaged $200,000 from what they actually needed. Factoring in average total coverage, almost 5 in 10 families would have only three years of household income replaced by their life insurance policies.

So, what are some reasons that Americans aren’t buying life insurance?

Reasons Why People Don’t Buy Life Insurance

  1. It’s too costly. In the 2016 survey by LIMRA, 64% said they didn’t buy life insurance because they thought it was too expensive. But, perhaps surprisingly, people tend to overestimate the cost of insurance. When asked how much a term life policy would cost for a healthy 30-year-old, almost 50% said at least $500 annually. Nearly 1 in 4 people said at least $1,000 per year.

    However, the actual cost was just $160 annually – which meant consumers went over by 213-525%! Overall, Americans often overestimate the cost of life insurance by as much as 300%.

  2. Other financial priorities. In another 2016 survey from LIMRA, more than 7 in 10 households said they had not bought life insurance because they held “other financial priorities right now.” Consumers gave many wide-ranging priorities as barriers, including:

    - Keeping up with required living expenses
    - Cost of extra expenses, such as Internet, cable, and cell phones
    - Saving for retirement
    - Paying off debt
    - Build up emergency funds
    - Saving for a new car, boat, or second home
    - Recreational activities like eating out, movies, and entertainment
    - Vacations
    - Saving up for college or paying student loans

    Household finances, including monthly costs of living, certainly can stretch budget dollars thin each month. Especially for families that are growing! But if money is tight now, think about it. What might happen if you were gone? And the costs of extras, such as going out to eat, over-the-top bills for hundreds of unwatched cable channels, or a daily morning latte, can add up fast. While the average American spends $84 per week on coffee outside of their home, a term life insurance policy for a 30-year-old would cost just $13 per month.

  3. Life insurance coverage already available through work. When asked why they have not bought individual coverage, many Americans point to group coverage through an employer. 44% of life insurance policies in force in 2015 were through groups, according to the American Council of Life Insurers. That’s good news, as some insurance protection is better than none at all.

    But the downside? Those with group insurance coverage tend to be underinsured. Generally, typical coverage ranges from $25,000-$50,000 or is a worker’s yearly salary, rounded to the closest $1,000. What this boils down to is just protection for a year’s worth of replaced income. Supplemental life insurance may be an answer, but many Americans don’t stay at the same company. If people leave their job, are laid off, are terminated, or end their job capacity in another way, their group policy ends. If you’re thinking about an individual policy to avoid gaps in coverage, a solid rule of thumb is to establish $1 million of coverage for every $50,000 in income you seek to protect.

  4. Have enough coverage already. According to LIMRA, 57% of households say they have enough insurance coverage already. This no doubt includes households with group coverage. However, on the whole many families are vastly underinsured.

    In a study by BankRate.com, among insured individuals, 47% held coverage amounts of $100,000 or less, including 21% with $25,000 or less in coverage. These households would be at high risk of financial trouble if they lost their primary income earners. Families with children under age 18 are especially vulnerable, as just 32% have $100,000 in coverage and 37% have no coverage amount at all.

  5. Uncertainty over what to buy or how much. 40% of households said they don’t know how much insurance they needed or even what type to buy. Given the many types of life insurance available, this isn’t that surprising. And with so many insurance providers competing for people's attention, it’s no wonder that millions of consumers get caught up in the shopping process. 70% of U.S. households are insured (and 30% uninsured), a rate which remains unchanged from the record-set low of 30% uninsured in 2010.

    When evaluating different types of life insurance, consumers benefit well from the guidance of an advisor or agent. LIMRA reports that 3 in 4 Americans say they would prefer to meet with a financial advisor or agent so they can ask questions and receive immediate assistance.

  6. Haven’t gotten around to it yet. According to LIMRA, 35% of households had not purchased life insurance simply because “they hadn’t gotten around to it yet.” Sure, the need to purchase life insurance tends to arise with life-changing events, such as having children, kids heading to college, or even aging. But with everything else that’s competing for our time and attention, it can be hard to follow through with an actual insurance purchase.

    Because life insurance extends protection and safeguards income, consider getting around to it as soon as possible. Not only will you be finished with the task of actually buying insurance coverage, but you will have greater peace of mind with it there, especially if something does happen.

  7. Brings up the uncomfortable topic of death. 34% of Americans have not bought life insurance because they “don’t like thinking about death,” LIMRA reports. It’s understandable, as no one likes to be reminded of their mortality. But what many Americans don’t know is that life insurance can be used for other financial goals on top of income replacement or household expense coverage.

    Under current tax law, permanent types of life insurance enjoy favorable tax advantages. If policies are structured properly, permanent insurance can be used to supplement retirement income from other sources. When taken as policy loans this money can come on a tax-free basis. Aside from supplementing income, other objectives that retirement savers use life insurance for are:

    - Pay for estate taxes or create estate liquidity
    - Saving in a tax-advantaged way
    - Provide funds for a college education
    - As a way to make a charitable gift
    - For business purposes

What if You Haven’t Purchased Life Insurance?

While LIMRA reports 5 million more U.S. households have life insurance than before, it attributes this growth to population increase. As we have discussed, over 37 million households are “completely underinsured,” as LIMRA words it. They could fall into financial straits if they lose their primary income earners.

Say you haven’t purchased life insurance and don’t fall into any of these groups. There are situations where life insurance doesn’t make sense. If it’s not clear to you, or you are ready to see if the financial protection of life insurance can help better your circumstances, now is a great time to get started.

We invite you to request a no-obligation strategy session with a financial professional at SafeMoney.com. Use our “Locate a Licensed Advisor” section to connect with an agent or advisor directly. If you need to, please call us at 877.476.9723 should you want a referral or have questions.

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