I received this question during the holidays and it really made me think how under insured we really are with life insurance in the United States. Of all of the different types of insurance products on the market today, life insurance for the value is the most affordable. What other insurance product could a healthy young lady age 25 buy for $12.62 per month for $500,000 of term life insurance coverage? It is quite literally pennies on dollar for most Americans. So, how much life insurance does the average person have? Let’s look at it this way.
The authority for the life insurance industry is Life Insurance Marketing and Research Association or LIMRA. According to LIMRA’s research over 30% of US households do not have life insurance. A staggering 55% of US households or 58 million people admit they do not have enough life insurance and need more. Not only are average US families not buying enough life insurance but those households that do have life insurance have had their face amounts decrease over $30,000 average since 2004. The most alarming number comes from a survey stating that 70% of US households admit they would have serious financial problems if the primary wage earner were to die within just a few months including 30% of households admitting their problem would be immediate. According to LIMRA, the answer would be not enough.
However to answer the question, the average person has roughly $165,000 face amount of life insurance in force in the US. This number has been decreasing in the past few years even though premiums have steadily decreased as well due to extended mortality rates. So, my question is if premiums are going down and we are all guaranteed to die one day, why are Americans buying less life insurance? There are theories from lack of education, low priorities, a self centered society, a high divorce rate and low marriage rate, just take your pick. I can’t seem to find just one answer to this dilemma. It is very sad, that something this important and affordable gets overlooked. Yet I see people camping out on the sidewalk to get the newest technology toy. We made health insurance the law of the land and yet millions are ignoring it, I don’t think forcing people to be responsible is the answer either.
Maybe it just boils down to us life insurance agents and brokers to be more aggressive educating folks on why they need life insurance. Life insurance mends family finances in case of an untimely death. Life insurance is the most affordable solution to help loved ones through a difficult time. The proceeds from life insurance pay costly bills and allow family members time to grieve and heal. It keeps the lights on and food on the table during a hiatus from work for grieving and healing. It allows children to attend college and fulfill their dreams. It pays for repairs when things break and you are no longer there to repair them. Life insurance keeps them in the family home where all of the memories are and doesn’t force them to immediately move due to finances. Without you being there income is cut in half if not more. You took a wedding vow that you promised to take care of each other forever, life insurance allows you to honor your vow after death.
Let’s get the word out and reverse this downward trend before more families are made to suffer.
“You cannot escape the responsibility of tomorrow by evading it today”.—Abraham Lincoln
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Tim Wilhoit is owner/principal of Your Friend 4 Life Insurance Agency in Nashville, TN. He is a family man, father of 3, entrepreneur, insurance agent, life insurance broker, salesman, sales trainer, recruiter, public speaker, blogger and team leader with over 27 years of experience in sales and marketing in the insurance and beverage industries.
If you have dependents to protect and don’t have enough savings, you definitely need insurance.
Very well stated Lynn.
I would answer that question with this one: Do you want to leave a legacy or a headache for your family?
Then do the due diligence that’s required to determine what the person really needs.
Joe, that is an outstanding way to look at it. Thank you for sharing.
Just a guess, but probably around $50K.
More than 80% have none whatsoever, so the market is open!
Stephen, I am guessing by your response you just read the question and not the article. The answer is actually $165,000 and 30% not 80% do not have life insurance. You are correct, the market is definitely open my friend!
Good blog Tim. Simply said and very true. I think most people are overwhelmed with all the messages coming at them today and what they ‘must have’. In a world where the ‘long view’ and long term thinking are drowned out by percieved needs of the immediate the result is that vital message of the need for life insurance is a faint whisper at best.
You are right that we need to get the word out. Financial Advisors need to help provide the clarity people need to hear. Life insurance is about family first, leaving a legacy, commitment – it does not go out of style or become obsolete in 6 months. The question is, how do we get the message out in today’s marketplace?
Dawn-Marie, I believe it starts with our own networks. By educating a sphere of influence and allowing them to carry the message to the next tier to the next tier is the best way to influence the masses. We need to use social media and live networking. Imagine how many people can be affected by a few 100,000 life insurance agents. Great question!
Most of the calls right now are about my 20 yr term life policy is about to run out.
Glenn, I am experiencing the same thing. Must have been a lot of old Dave Ramsey fans. LOL!
There are typically three reasons people don’t buy life insurance. 1-They don’t see the need for it; 2-they don’t think they can afford it; or 3-they just never got around to it. Here are just a few responses to those “excuses” for not buying life insurance. I’m sure others have more to add, but I wanted to be brief.
1-I’m young and invincible so why do I need it; I have insurance through my job, why pay for another policy
2-Perhaps the agent is trying to sell them too much insurance or even more often, the wrong type. When confronted with the sticker shock of an expensive policy, the prospect shuts down and does nothing
3-The graveyards are full of people who just never got around to it. Unfortunately it’s their families that were left in deep crap as a result.
It really does boil down to agents providing a better education of how life insurance is a critical need as part of their overall financial game plan. That also requires them to have a better understanding of the entire financial picture of that family and not just there to make a sale.
Sometimes we face these questions either raised by the client or driven by our own thoughts. Here is how I approach them.
Do HNWC need Life Insurance and Premium finace.
I start off with the premise that they need a ton of it. As an exercise imagine the government giving it away free. How long would be the line up at the government office?
Most HNWC appreciate the value of life insurance. They just do not want to pay for it … believe it costs too much, can put their money to better use, or they are asset rich but cash poor. PF solves these issues.
HWNC need a ton of liquidity.
You can also position LI as an alternative asset class. Generally, HNWC balance sheet shows the following assets: stocks, bonds, real estate, hedge funds, currency, business. Now they can add another asset class to their balance sheet and it would diversify the family’s wealth.
Lastly, there are HNWC who just like the idea of leveraging their balance sheet to create additional wealth for their family. By pledging their investment portfolio to get the PF loan they are leveraging their balance sheet.
So, we simplify the needs – liquidity, alternative asset class and a tool to create additional wealth. These are the 3 needs we focus on.
Life Insurance … is it a good investment
There are many ways to approach this ?. Here is how I think about it.
Life Insurance – features of this asset
Liquid (CV and DB)
Tax advantaged – no tax on accumulation, withdrawal or payout
Costs cents on the $
Flexible … cover, premium, change
Non correlated with stocks/bonds
Offers guarantees – minimum credited interest rate, COI
Wealth transfer vehicle
Asset protection vehicle
Transparent
Regulated and Subject to government oversight
How many assets have these properties?
Life Insurance – Return on Investment
One way of looking at an investment is to look at what return your $ earns. In our PF design we look at IRR at various periods. Generally, the IRR at year 30 ranges from 8% to 13%. Is this good? Compared to what? Today 10 year US bonds pay less than 2.5%!
Some may argue that the IRR is based on DB and not on CV. This is true. However if you want to use it an accumulation vehicle you would buy the least amount of insurance. So if you have $1m to invest then we buy a $1.1m policy. I guarantee you the return after 5 years look attractive compared to govt bonds. Besides one has to pay for the other features that come with this asset class.
Notwithstanding, let’s look at a PF summary proposal after say 20 years in case the client cancels. When you subtract the o/s loan and interest paid from the cumulative CSV you usually break even or make a profit. Let’s say you break even. Was it a good or bad investment? The client was covered for 20 years … what is value of that benefit?
Life Insurance – Return of Investment
HNWC in some countries are looking for a safe haven vehicle that is liquid and protects their $. They are more concerned aboutprotecting there assets than return on $. Life Insurance can be used as the structure to do this. Think about HNWC living in countries like Colombia, Venezuela, Argentina, China, Africa etc. One of the things we are seeing is HNWC buying expensive real estate in places like Canada, USA, UK, Dubai. Why … they are looking to park $ outside their home country. LI is a good asset class to do this also.
Gary, I think your 3 reasons people don’t buy is spot on. Adrian, you are obviously a very knowledgeable advisor but I feel that much detail to the average client is drinking from a fire hose. One thing is certain, confused people do nothing, The kind of client that understands that level of detail already has life insurance, but may need more. Our job as agents and advisors is to simplify life insurance so hard working American understands the need and how affordable it really is to own. Thank you both for sharing in this discussion, you are both obviously successful in our industry.
Dear Tim:
My comment was not intended to be a sales pitch. Instead it was targeted too an illustrated Insurance Professionals group as analysis subject. I totally agree with your line of thought about the KIS factor. Keep it Simple.
If you authorize me, I would like to use some off “your arguments” translated to Spanish in other forums I colaborate with. Do you mind?
Adrian, I totally understand that the comment was not your sales pitch. I admired your extensive knowledge of our industry. There are many agents among us that lack those thoughts. I commend you.
I am flattered that you would like to use my article, yes you may translate it. The only request I have is to give me credit as author and link it back to my original article on my website. Many thanks!
https://yourfriend4life.com/how-much-life-insurance-does-the-average-person-have/#comment-8509
Thank you very much Tim!
Acabo de leer un artículo de Tim Wilhoit en Insurance Proffesionals y con su autorización quiero traducir una parte del mismo para beneficio de los lectores en español.
El seguro de vida permite hacer frente a los problemas financieros que ocasiona el fallecimiento del asegurado. Es también el medio más económico (costo- beneficio) para ayudar y dar tiempo a la familia para permitirles vivir su duelo y recuperarse en tiempos difíciles. Mantendrá pagada la luz y pondrá comida en la mesa mientras los deudos pasan por un período de adaptación y aceptación por la pérdida sufrida. Permitirá que los hijos sigan asistiendo a clases y que puedan continuar persiguiendo sus sueños. Pagará las reparaciones necesarias cuando tu ya no estés allí para arreglarlas. El seguro de vida mantendrá a la familia en el hogar familiar, junto a las memorias de tiempos mejores sin verse forzados por la nueva situación económica a venderlo de inmediato. Sin ti para seguir proveyéndolas probablemente sus ingresos se hayan reducido a la mitad o menos. Tú hiciste un compromiso el día de tu matrimonio con tu pareja de por vida, el seguro de vida te permite llevarlo más allá de la misma.
“Pueden conectarse con Tim en yourfriend4life.com
not enough , never ever!