The Us Term Life Insurance Industry: Size And Scope

The US term life insurance industry is a significant component of the country's economy, with life insurance net premiums surpassing $635.8 billion in 2021. In recent years, there has been a shift from traditional life insurance towards annuities, which now account for a large portion of the industry's business. While the industry is dominated by a handful of large corporations, independent agents sell about half of all life insurance policies.

Life insurance companies in the US

The US life insurance industry is a large and competitive market with hundreds of companies offering a range of policies to suit different needs. According to the American Council of Life Insurers, there are over 700 life insurers operating in the country. The 15 largest life insurance companies in the US command almost two-thirds of the country's overall individual life insurance market, with combined direct written premiums (DWP) of more than $100 billion. Milwaukee-based Northwestern Mutual Life Insurance Co. is the largest individual writer in the US, with about $18.9 billion in direct premiums.

New York Life Insurance Co. and Massachusetts Mutual Life Insurance Co. (MassMutual) are the second and third largest life insurance companies in the US, respectively. Both mutual insurers have experienced double-digit growth in individual life insurance premiums. Other large life insurance companies in the US include MetLife, American International Group (AIG), Prudential Financial, Lincoln National Corp. (Lincoln Financial), and Sammons Enterprises Inc.

The US life insurance industry offers a variety of policy options, including term life insurance, whole life insurance, and universal life insurance. Term life insurance covers the policyholder for a set term, while whole life insurance offers coverage for the entire lifetime of the insured. Universal life insurance uses different premium structures, with earnings based on market performance.

The life insurance industry in the US is regulated at the state level, with each state having its own rules for purchasing, maintaining, and claiming life insurance. The latest data shows that about half of US adults owned life insurance in 2023, down from 63% a decade earlier. The industry has seen a shift towards online life insurance shopping and purchasing due to technological advancements and the COVID-19 pandemic.

Life insurance ownership

The downward trend in life insurance ownership has been attributed to a range of factors, including a shift in consumer preferences away from traditional life insurance products and an overall loss of interest in life insurance among US consumers. However, there are some signs that this trend may be beginning to reverse, with a growing market for life insurance among single mothers and younger generations.

The 2023 Insurance Barometer Study found that a record-high proportion of consumers (39%) intended to purchase life insurance within the next year, with this proportion being even higher among Gen Z adults (44%) and millennials (50%). This shift towards online life insurance shopping and purchasing has been driven by technological advances and the COVID-19 pandemic, which has made it more convenient and accessible for consumers to research and purchase life insurance policies.

The study also found that parents of minor children were more likely to own life insurance than the general population (59% vs 52%), and were also more likely to acknowledge that they did not have enough coverage (47% vs 41%). This is likely due to the financial responsibilities and commitments that come with having children, as well as the desire to ensure their children's financial security in the event of their death.

In addition, the study found that life insurance ownership was higher among married couples and homeowners, as these individuals tend to have more financial commitments and assets to protect. Life insurance can provide financial protection for loved ones in the event of the policyholder's death, covering burial costs, paying off debts, or providing for children's education.

Life insurance costs

The cost of life insurance is calculated based on several factors, including age, gender, health, lifestyle, the type and length of the policy, and the amount of coverage. The average cost of life insurance largely depends on an individual's risk of mortality. This means that younger and healthier people tend to pay lower rates. The average monthly cost of life insurance is $26 for a 40-year-old purchasing a 20-year, $500,000 term life policy, the most common term length and amount sold. However, life insurance rates can vary significantly depending on the applicant, insurer, and policy type.

Term life insurance is the least expensive type of life insurance as it lasts a set number of years and does not build cash value. Permanent life insurance, on the other hand, typically lasts a lifetime and includes a cash value component, making it substantially more expensive than term life insurance. Permanent life insurance policies include whole life insurance, universal life insurance, variable life insurance, variable universal life insurance, and indexed universal life insurance.

Insurers typically classify applicants as super preferred, preferred, or standard, with super preferred being the healthiest category. The main factors that insurers assess when setting rates include:

• Age: Younger people generally pay less for life insurance.
• Gender: Women tend to pay less than men of the same age and health due to higher life expectancy.
• Smoking status: Smokers pay more for life insurance due to higher health risks.
• Health: Pre-existing conditions, blood pressure, cholesterol levels, height, and weight can impact rates.
• Family medical history: A history of serious health conditions in the family may result in higher rates.
• Driving record: A history of DUIs, DWIs, or major traffic violations can lead to higher rates.
• Occupation and lifestyle: High-risk jobs or participation in risky activities may result in higher premiums.

It is important to note that life insurance rates are not affected by ethnicity, race, sexual orientation, credit score, marital status, the number of policies or beneficiaries, or location.

Life insurance payouts

Life insurance policies offer a payout, known as a death benefit, to the policyholder's beneficiaries after their death. This benefit is intended to provide financial security and relief to the beneficiaries, who are often close family members of the deceased.

Claiming the Payout

The beneficiary or beneficiaries must contact the insurance company and initiate the claims process. They will need to provide a death certificate and other necessary documentation, such as the policyholder's Social Security number, date of birth, and address. The insurance company will review the claim, and if everything is in order, the payout will be processed.

Types of Payouts

There are several options for how the death benefit can be distributed to the beneficiaries:

• Lump-sum payment: This is the most common option, where the beneficiaries receive the entire death benefit in one single, usually tax-free, payment.
• Installment payments: The death benefit is received in regular installments over a fixed period or for the beneficiary's lifetime. This provides a steady income stream but may accrue taxable interest.
• Retained asset account (RAA): The insurer holds the death benefit in an interest-bearing account, and the beneficiary can withdraw funds as needed. The interest earned on this account may be subject to taxes.
• Interest-only payout: The insurer retains the principal amount and pays the beneficiary only the interest earned. The principal can be passed on to other beneficiaries upon the original beneficiary's death.
• Lifetime annuity: The beneficiary receives guaranteed payments for the rest of their life. The amount is determined by the death benefit and the beneficiary's age.
• Fixed-period annuity: The death benefit is paid out over a specified period, such as 10 or 20 years. If the beneficiary dies before this period ends, their designated beneficiaries will continue to receive the payments.

Uses of the Payout

There are typically no restrictions on how the life insurance payout is spent. However, it is often used to cover significant expenses and debts, such as:

• Funeral and burial costs: The median cost of a funeral for an adult in the US is on the rise.
• Mortgage and other consumer debts: Eliminating these financial burdens can provide peace of mind and security for the bereaved family.
• College tuition: The payout can be used to fund a child's or grandchild's education.
• Taxes: Paying off any taxes, both related to the claim and otherwise, is a common choice for beneficiaries.
• Investments: Beneficiaries may choose to invest a portion of the payout in retirement accounts, real estate, or even their own life insurance policy.

Life insurance beneficiaries

The US term life insurance industry is a large market, with a high proportion of consumers intending to purchase life insurance. In 2023, about half of US adults owned life insurance, down from 63% a decade earlier. The total number of policies in force across the US in 2022 exceeded 250 million, and the market is dominated by a handful of large insurance corporations.

Now, let's focus on life insurance beneficiaries:

A life insurance beneficiary is a person or entity chosen by the policyholder to receive the death benefit from the policy when the insured person passes away. It is crucial to name a beneficiary when purchasing life insurance. The beneficiary is paid the death benefit, and the insurer is obligated to follow the contract. This means the payout goes to the named beneficiaries, regardless of what a will or family may say.

Types of Beneficiaries:

There are two main types of life insurance beneficiaries: primary and contingent.

• Primary Beneficiary: This is the person or entity who is first in line to receive the death benefit payout after the policyholder's passing. Typically, this is a spouse, children, or other family members. You can name more than one primary beneficiary and decide how much of the death benefit each receives.
• Contingent Beneficiary: Also known as a secondary beneficiary, this person or entity will receive the death benefit if the primary beneficiary passes away or cannot be found. It is wise to name at least one contingent beneficiary to ensure the benefit is received by the intended party.

Who Can Be a Beneficiary?

Almost anyone can be named as a beneficiary, including family members, friends, charities, trusts, or even your estate. However, state laws may vary, and some states require the spouse to be the primary beneficiary, receiving at least 50% of the benefit. In certain states, you may name someone else with your spouse's written permission.

Naming a Beneficiary:

When naming a beneficiary, be specific and provide as much information as possible, including the person's full legal name, relationship to you, and contact details. This helps insurance companies verify and locate beneficiaries quickly, ensuring faster access to funds for your loved ones.

Updating Beneficiaries:

It is important to keep your beneficiary designations up to date, especially after major life changes such as marriage, children, or divorce. You can usually change beneficiaries at any time, but there may be special circumstances where you need the current beneficiary's consent, such as specific divorce terms or an "irrevocable designation."

Not Naming a Beneficiary:

If you don't name a beneficiary, it may delay the benefit payment as it becomes unclear who is entitled to the funds. The payout will likely be paid to your estate or held in probate, and your loved ones may have to wait years to access these funds.

Beneficiary Payout Options:

There are a few options for how the beneficiary receives the death benefit payout:

• Lump Sum Payment: The traditional route, where the benefit is paid out in one large sum.
• Scheduled Installments: The benefit is paid out in regular installments, mimicking a typical income stream for the beneficiary.
• Retained Asset Account: This option allows the beneficiary to write checks against the balance of the death benefit, with the insurance company acting like a bank.

Special Considerations:

When choosing beneficiaries, consider the following:

• Minors: Children under 18 cannot directly receive the death benefit. You may need to set up a trust or custodial arrangement if you want the payout used for their benefit while they are minors.
• Special Needs: Naming someone receiving government assistance as a beneficiary may make them ineligible for future support. Consider setting up a special needs trust to avoid this issue.
• Charities: You can name charities as beneficiaries to leave a lasting impact on causes you care about.

In conclusion, choosing the right life insurance beneficiary is essential to ensure your loved ones are financially secure and your wishes are carried out after your passing.

Frequently asked questions