Life Insurance: Fewer Buyers, Bigger Policies
The fact that far fewer people are buying life insurance is a real head scratcher. I’ve been pondering this and hypothesizing various reasons. Is the life insurance market reflecting the trends of income inequality? Are people in the bottom half of the income scale stretched too thin to protect their families, or are they just spending their money at Starbucks instead? Do online sales of term policies mean that insurance agents are not “selling” insurance to those who need it most?
Consider These Stats:
- Americans purchased 27 million life insurance policies in 1965. The population was 50 percent larger in 2016 but still only purchased 27 million policies.
- The share of Americans with life insurance has fallen to less than 60 percent, from 77 percent in 1989.
- In 1989, 76 percent of Americans with a high school diploma owned life insurance. By 2013, that share had declined to 55 percent.
- Ownership fell from 88 percent to 73 percent for those with a college degree.
- Life insurance ownership fell from 94 percent to 85 percent among the top 20 percent of income earners, but it dropped more steeply from 44 percent to 27 percent, among those in the bottom 20 percent of the income scale.
Fewer, But Bigger Policies:
People who are buying the insurance are purchasing bigger policies. This also seems like a reflection of the widening income gap. Wealthy people buy lots of life insurance and frequently buy cash value policies as an alternative investment and tax-free retirement income source. This strategy is almost never employed by the bottom 80% of the income earning population.
The Irony of Declining Life Insurance Sales:
There are a couple of things I find ironic about the trends in life insurance sales:
- Life expectancies are increasing…but not for low income Americans. The lowest-income Americans have seen almost no change in their life expectancies over the past few decades, while those in the top 20% of income earners are living almost a decade longer. So those who most need life insurance, due to shorter lifespans and a lack of savings, are significantly less likely to have it.
- Life insurance is cheaper than it’s ever been. Term insurance costs have dropped steadily over the past 30 years. Check out these annual sample premiums as of February 2016. (Source: com survey of 50 leading life insurance companies)
Three Final Thoughts:
- The cash value policies available today are significantly better and cheaper than the policies available 10+ years ago. They build cash value quicker, have higher death benefits, and have all kinds of options like including long-term care coverage in the same policy. Many policy owners, who are retired or near retirement age, should consider exchanging their existing cash value policies for newer ones.
- Term insurance is the lowest cost way to get pure death benefit coverage (no cash value) for your loved ones. You can get term life insurance quotes quickly and easily from several websites such as selectquote.com or lifequotes.com.
- My life insurance premium is the one bill I never complain about. I can’t imagine compounding a loved one’s grief with financial ruin. Please make sure your family is covered.
Questions, comments, thoughts? Email me.
Have a great week.