Nearly 5 million more U.S. households today have life insurance coverage compared to 2010, according to LIMRA’s 2016 Trends in Life Insurance Ownership study, released Sept. 29.
But before anyone in the industry gets too excited, the growth in households with life insurance coverage reflects an increase in population rather than an increase in market penetration. The study found 30% of households remain uninsured, equal to the record low set in 2010.
“It is certainly good news that so many more families have some form of life insurance than did in 2010, and that the downward trend of overall life insurance ownership has stabilized,” said Robert Kerzner, president and CEO, LIMRA, LOMA and LL Global. “However, more than 37 million American families are completely uninsured and at financial risk if their primary wage earner dies unexpectedly.”
More Millennials own life insurance
Overall, 70% of Millennials own some life insurance (individual, group or both). This is 10 percentage points higher than in 2010. In addition, Millennials’ ownership of individual life insurance has increased 48% since 2010.
“As the leading edge of Millennials have gotten older, they are beginning to get married, buy homes and have children, which are the top triggers for people to shop for life insurance,” noted Kerzner. “Many of this generation became adults during the Great Recession. As a result, our studies indicate that they are more concerned about protecting their financial well-being than prior generations at the same age.”
The top three reasons Millennials own life insurance is to pay for final expenses (funeral, burial, etc.): 49%; to replace income: 35%; and to pay off their mortgage: 22%. This aligns with the general population.
More households with children under 18 have life insurance
One in five households with children under age 18 are uninsured, according to the 2016 study. This amounts to 3.7 million fewer households, compared with 2010 results.
Of those families who have no life insurance coverage, 73% recognize they need life insurance and 62% say they would be in immediate financial trouble if a primary wage earner died. The good news is two-thirds of these households say they are likely to purchase life insurance within the next 12 months.
Life insurance coverage adequacy declines
In 2010, insured households had coverage to replace their income for 3.5 years. Today that has dropped to 3 years, which is far lower than most industry recommendations.
Using LIMRA’s Life Insurance Needs Model, LIMRA estimates that 48% of households (60 million) have an average life insurance coverage gap of $200,000, which amounts to more than $12 trillion in total market need.
“Our Life Insurance Needs Model examines total income, assets and debt, and the overall makeup of the household to determine how much life insurance would be adequate to keep the family financially stable in the event of the death of the primary wage earner,” said Kerzner. “Our findings indicate that even Americans who own life insurance might not own enough to keep their families financially secure. It is important that people reexamine their life insurance needs on a regular basis to ensure they have enough life insurance coverage as their life situations change.”
Next page: People still drastically overestimate cost of coverage; but 45% plan to purchase in next year
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