LIMRA International, a global association that provides research to almost 850 insurance and financial services companies, revealed the following statistics in its 2005 Life Insurance Ownership Study:
· 24 million U.S. households (22%) have no life insurance protection.
· Among households with individual life insurance, almost half only carry coverage on some household members.
· Almost one-third of adults have no life insurance protection, a statistic that hasn’t changed in two decades.
These are astounding statistics in light of the study’s additional, seemingly contrary findings: approximately three-fourths of Americans agree life insurance is the best way to protect against the premature death of a primary wage earner; and further, life insurance rated higher than all other assets or income Americans expect to use to pay bills and maintain their lifestyle if a primary wage earner dies.
If most people understand the value of life insurance, why do so many hesitate to obtain coverage? The reasons have much to do with the industry’s perception in recent years. As more and more Americans look to the stock market to build their fortune, insurance carriers have jumped on the bandwagon, touting the investment aspect of life insurance. Unfortunately, this comparison has only highlighted life insurance as a lesser-quality investment.
Another reason for life insurance’s poor public image is the volume of publicity given to lawsuits against some heavy industry hitters in the recent past. Such stories exacerbated Americans’ mistrust of large corporations and made them wary of falling victim to hurtful corporate ethics.
Finally, with the advent of the two-paycheck household, Americans are less dependent on a single primary wage earner than in the past. They believe that if one spouse dies, the surviving spouse will have enough money to sustain the family’s previous lifestyle between salary and other financial assets.
Despite these reasons, life insurance may not be the old-fashioned safety net of bygone times many Americans assume it to be. Death benefits can provide for several unforeseen consequences that stem from a spouse’s death, such as having the funds to continue mortgage payments or college tuition bills.
At first, it may seem like a better idea to invest in the stock market rather than pay life insurance premiums, but equity investments should never be viewed as a direct substitute for life insurance. Equities fluctuate, and a strong bear market can quickly erode any gains seen when the bulls are riding high. And it isn’t only the market that’s precarious; sadly, life can be unpredictable, too: a person may not die at a time when a portfolio contains adequate assets to support the family. Life insurance offers a predictable death benefit amount regardless of current market conditions. Additionally, even if your family’s stock portfolio is burgeoning, that abundance is likely to be taxed when assets are liquidated. The death benefit on a life insurance policy is passed income tax-free to the beneficiary, and with some sound financial planning, this money may be passed along free of estate taxes, too.
In short, the value of a life insurance death benefit shouldn’t be overlooked when planning for your family’s welfare after you’re gone. Life insurance may be your family’s most vital source of cash support while coping with your loss. This support may ultimately mean the difference between continuing a more familiar life rather than surrendering much of what they’re accustomed to.