Many Overestimate the Cost of Life Insurance
Sales for life insurance policies are at a 50 year low, and results from a recent survey may explain why. LIMRA, a worldwide agency dealing with research, consulting, and professional development in the insurance world, teamed up with the nonprofit LIFE Foundation, which strives to educate the masses about life and health insurance, to complete the latest study. As part of the survey, participants were asked to estimate the annual cost of a 20-year, $250,000, term life insurance policy for a healthy 30-year old consumer. Many Americans estimated the price tag to be around $400, nearly three times the actual cost of roughly $150. Younger participants (who often receive lower premium rates) overestimated by almost seven times the real cost. It is this gross miscalculation that has many experts believing that the misconception of cost is keeping many from purchasing a life insurance policy, as reported in the Market Watch article, “Consumers Overestimate Cost of Life Insurance By Nearly Three Times.”
The 2012 Insurance Barometer Study found that almost 33% of all consumers think they need more life insurance. And the most commonly cited reason for not purchasing it was because it was too expensive. In fact, 83% listed this as one of the top reasons, second only to allocating funds to “other financial priorities” (85%). Marvin H. Feldman, CEO of the LIFE Foundation, believes that people will not even consider a product if they think it’s overpriced. He claims, however, that the price of life insurance has dropped 50% over the last decade, making it more affordable than ever to purchase a basic term life policy. Feldman’s goal is to educate the general public about the actual cost, making it more attainable to all families.
The study produced additional interesting information about the life insurance industry. For example, women, younger adults, and minorities generally felt more underinsured than their counterparts. Some experts believe this could be a sign that these markets are severely underserved. The Insurance Barometer Study also found that while many believed they needed life insurance, their priorities are with other financial obligations. Consumers claimed they were more concerned about paying their mortgage or rent and losing money on investments, than with purchasing a life insurance policy, which could be a sign of the recent economic recession. Another reason cited was concern for financial stability in retirement. Of course these reasons are very valid, however industry experts would argue that protecting loved ones in the event of losing the breadwinner is equally, if not more important. The misconception of the cost of a term policy is what holds many back from securing their family’s financial future, but armed with this new information, industry leaders will hopefully change many minds.