Fewer Americans are buying life insurance. Here’s why that needs to change.
Roughly half of Americans don’t carry a life insurance policy—that puts their family members at risk if tragedy strikes. Here's why that needs to change.
Life insurance ensures that your loved ones will be protected if something happens to you.
Why it matters. Roughly half of Americans don’t carry a life insurance policy—that puts their family members at risk if tragedy strikes.
Life insurance is an important aspect of financial planning. These policies provide a financial safety net for your loved ones in the event of your unexpected death.
Despite their importance, life insurance policy rates are down 13% over the last decade. And yet nearly half of Americans claim they’d feel financially burdened within six months if their partner died.
Why don’t most Americans carry a plan? Cost.
- Only 31% of Americans who live in households that make under $50,000 have life insurance policies
- The rate jumps to 52% when household income increases to $50,000-$99,999
- In households earning more than $100,000, 63% of Americans carry a policy
Types of life insurance
Nearly a third of Americans say they don’t have life insurance because they don’t know what type of policy to buy.
Two main types of life insurance exist:
- Term life insurance. This policy provides coverage for a specific period of time, usually between 10 and 30 years, though you can find policies for one year. Being less expensive, it’s a great option for most people, though no money is paid out if you outlive the term you choose.
- Whole life insurance. Also known as permanent life insurance, this policy provides coverage for the duration of your life. Otherwise known as “set it and forget it,” your loved ones will receive the policy’s cash value provided you pay the premium for the duration of your life.
Other forms of life insurance include:
- Variable life insurance. The value of this policy is tied to investment accounts. The good news is that the potential for considerable gains exists, and you can even take partial withdrawals or borrow against the policy. The downside is that this is a very hands-on policy that involves fees and other charges when cashed out.
- Guaranteed universal life insurance. While this policy typically carries little cash value, the plus is that it’s cheaper to purchase and you can choose the age that you want the death benefit guaranteed. Plus, the premium never changes. Buyer beware, however: missing one payment sometimes means you forfeit the entire policy, leaving you with nothing.
- Indexed universal life insurance. This policy ties the cash value to a stock market index. You get all the details upon signing the contract, yet your gains will forever be determined by the policy. This is a great option if you’re less risk-averse and don’t want to take your chances with the market. Yet due to caps on returns, you won’t perform as well in a hot market—and you’ll have to be vigilant in monitoring this policy.
3 reasons to buy life insurance
Financial security means different things to different people. Beyond providing for loved ones, however, the following three needs top the list of reasons for carrying a policy:
- Paying for burial expenses
- Transferring wealth or leaving an inheritance
- Covering lost income
How to choose a policy
Consider your needs and budget when choosing a life insurance plan.
Term life insurance is typically less expensive than whole life insurance and may be a good option for those on a tight budget. Whole life insurance is more expensive, yet it also provides a savings component that can increase in value over time.
Remember to consider the amount of coverage you need. A general rule of thumb: buy a policy worth at least 10-15 times your annual income. This will ensure that your loved ones are financially secure if something happens to you.
In addition to providing financial security for your loved ones, some policies offer the option to add riders that provide additional coverage, such as accidental death coverage or long-term care coverage.
Life insurance provides a financial safety net for your loved ones in the event of your unexpected death. By understanding the different types of life insurance and considering your needs and budget, you can choose the right policy.
The benefits of having life insurance goes beyond just financial security—it provides peace of mind: 68% of people with life insurance feel financially secure, while just 47% of those who don’t own a policy feel the same.