Life Insurance: An American Privilege Or Right?

Life insurance is a simple way to ensure your family's financial security, but it can be expensive and difficult to understand. As a result, 48% of Americans, or about 100 million people, don't have life insurance. This figure includes those who are underinsured. In fact, 41% of adults believe they don't have enough coverage. However, interest in life insurance is at an all-time high, with 39% of consumers intending to purchase coverage within the next year. This is especially true for younger generations, with 44% of Gen Z adults and 50% of millennials planning to buy life insurance in the next year.

Americans without life insurance

Life insurance is an important aspect of financial planning, but it's not uncommon for Americans to go without it. In fact, only about 52% of Americans have life insurance, leaving nearly half of the country's population without coverage. This may be because many Americans (42%) believe that life insurance is too expensive, and they are correct to a certain extent—the cost of life insurance can be high, especially for those with pre-existing health conditions. However, it's worth noting that consumers often overestimate the cost of a term life insurance policy.

There are several factors that influence the decision to purchase life insurance, such as age, income level, employment, gender, and marital status. Younger Americans are increasingly interested in insurance to protect their families, but older adults have the highest enrollment rates. Higher-income consumers may be more likely to invest in life insurance for asset protection and estate planning purposes. Many Americans also have insurance through their employer, but this number decreases as people get older and retire.

Women are more likely to worry about their family's well-being but are less likely to purchase life insurance than men. Married people are also more likely to buy life insurance than single individuals due to the added financial responsibilities that come with marriage, such as joint mortgages and finances. However, it's important to note that life insurance can also be beneficial for single individuals without dependents. It can help cover outstanding debts, such as student loans, mortgages, or car loans, and it can also help with final expenses like burial costs.

Overall, the decision to purchase life insurance depends on an individual's financial situation and personal preferences. While it can provide financial security and peace of mind, it's not a necessity for everyone.

The cost of life insurance

Life insurance companies base their rates primarily on age and health status, with older people paying more due to decreased life expectancy. Other factors that influence the cost of life insurance include gender, job, weight, smoking status, and family health history. Men tend to pay more than women because they have shorter life expectancies. Smokers pay significantly more for life insurance, with premiums that are 218% higher than for non-smokers.

Permanent life insurance, which lasts a lifetime and includes a cash value component, is more expensive than term life insurance. Term life insurance is the least expensive option because it only covers a set number of years without building cash value.

Who relies on life insurance

Life insurance is a safety net that ensures your loved ones are financially secure in the event of your death. It is a contract between you and an insurance company, where you pay premiums in exchange for a sum of money paid out to your beneficiaries when you pass away. While it's not a necessity for everyone, certain individuals rely on life insurance to protect their families and dependents. So, who relies on life insurance?

• Parents and Guardians: Life insurance is crucial for parents and legal guardians of minor children or adult children with special needs. In the unfortunate event of their death, life insurance can ensure their children will have the financial resources to support themselves. It can also help cover the costs of caregiving services for children who require lifelong care.
• Spouses and Partners: If one spouse or partner relies on the other's income, life insurance can provide financial stability and help maintain their standard of living. Even if both spouses work, life insurance can be essential, especially if they have joint mortgages, finances, or children.
• Stay-at-Home Spouses: Stay-at-home spouses often contribute significantly to the household through unpaid labour such as cleaning, cooking, and childcare. Life insurance can help the working spouse cover these expenses if their partner passes away.
• Small Business Owners: Life insurance can benefit small business owners and their business partners. In the event of the owner's death, the payout can help business partners or heirs manage expenses, buy out the deceased owner's share, and ensure the business remains operational.
• Co-signers or Co-owners of Debt: Life insurance can protect co-signers or co-owners of debt, such as a mortgage or loan. In most cases, debt does not pass to others after your death, but if someone co-owns or co-signs a debt with you, life insurance can help them avoid being burdened with the full debt.
• Seniors and Adult Children: Seniors who rely on their adult children for care may want life insurance to reimburse their children's costs and ensure they are financially secure. Additionally, adult children who have co-signed loans or incurred private student loan debt for their parents may need life insurance to cover these debts in the event of their parent's death.
• Wealthy Families: Life insurance can be essential for wealthy families who expect to owe estate taxes. It can provide funds to cover these taxes, ensuring the full value of the estate remains intact for the heirs.
• Families with Funeral and Burial Expenses: Planning for end-of-life expenses is crucial, and life insurance can help cover funeral and burial costs, which can be significant.

While the above groups commonly rely on life insurance, it's important to assess your unique financial situation and determine if life insurance is necessary for your circumstances.

Why get life insurance

Life insurance is not a one-size-fits-all decision, and it's true that many Americans don't have it. However, there are several compelling reasons why getting life insurance is worth considering.

Firstly, life insurance provides financial security for your loved ones. It can help replace lost income, cover childcare or healthcare costs, and enable your family to maintain their standard of living. This is especially important if you have young children or other dependents, such as ageing parents, who rely on your financial support.

Secondly, life insurance can pay for final expenses, including funeral and burial costs, probate and other estate administration costs, debts, and medical expenses not covered by health insurance. The median cost of a funeral with a viewing and burial is around $7,848, and without savings, your loved ones may struggle to cover these expenses. Life insurance ensures they don't have to worry about finances during an already difficult time.

Thirdly, life insurance can create an inheritance for your heirs and ensure they don't have to liquidate assets to pay estate taxes. It can also enable you to make significant charitable contributions by naming a charity as your beneficiary.

Additionally, some types of life insurance create a cash value that can supplement your retirement income, fund your child's education, or be borrowed against in an emergency.

Finally, life insurance offers peace of mind. Knowing that your loved ones will be financially protected if something happens to you can provide reassurance and help you plan for the future.

While life insurance may not be necessary for everyone, it's worth considering the potential benefits to ensure your family's financial security and peace of mind.

Types of life insurance

While it's unclear whether it's "normal" for Americans not to have life insurance, it's certainly common. Around 48% of Americans don't have life insurance, and over 100 million are uninsured or underinsured.

There are eight types of life insurance, which fall into two main categories: term life and permanent life. The type of insurance that's best for you will depend on your budget and your financial responsibilities. Here's a breakdown of the different types:

Term Life Insurance

Term life insurance offers coverage for a set number of years before it expires. It's the cheapest type of life insurance and is ideal for people who want coverage for a specific debt or situation, such as a mortgage. The downside is that if you still need coverage after the term expires, renewal rates can be unaffordable.

Whole Life Insurance

Whole life insurance provides coverage for the duration of your life and can build cash value over time. It's one of the more expensive types of life insurance due to its guaranteed features. It's suited for people who want lifelong coverage and are willing to pay for the guarantees provided.

Universal Life Insurance

Universal life insurance is an adjustable permanent life insurance policy that builds cash value. It's unique in that it allows you to decrease or increase your monthly or annual premiums over time. It can be a good option for someone looking for lifelong coverage but can be very expensive, especially as you age.

Variable Life Insurance

Variable life insurance is another type of adjustable permanent life insurance that allows you to invest the money from your cash value in various funds offered by the insurance company, including mutual funds. While it offers the potential for high returns, there is also a high investment risk as you could lose money if the fund underperforms.

Final Expense/Burial Insurance

Final expense insurance, also known as burial insurance, is a type of permanent life insurance designed to pay a small death benefit to cover end-of-life expenses such as funeral costs. It's usually offered as a policy that doesn't require a medical exam and is intended for people in poor health who don't have other life insurance options. However, it can be expensive for the amount of coverage provided.

Survivorship/Joint Life Insurance

Survivorship life insurance is a permanent policy that covers two people, usually a married couple. The payout is made when both people have passed away. It can be beneficial for estate planning and can be less expensive than buying two separate policies. However, it's not suitable if one spouse would suffer financially from the death of the other, as the surviving spouse does not receive any benefits.

Mortgage Life Insurance

Mortgage life insurance is designed to cover only the balance of a mortgage, with the death benefit paid directly to the mortgage lender. It can be appealing to those who don't want to take a medical exam to qualify for insurance. However, it doesn't provide financial flexibility for your family as the payout is restricted to the mortgage lender.

Credit Life Insurance

Credit life insurance covers a specific debt, such as a mortgage or business loan. The death benefit is paid directly to the lender, not your family. It can be convenient if you're concerned about how your family would pay off a debt if you passed away, but it's very narrow and doesn't allow for financial flexibility.

Supplemental/Group Life Insurance

Supplemental life insurance is the type of insurance often provided through an employer. It's usually free or inexpensive and offers guaranteed coverage, but it's limited and you'll generally lose it if you leave your job.

Other Types

There are also a few other subtypes of life insurance, including short-term life insurance, which provides temporary coverage while you're waiting for approval on a longer-term policy, and accidental death and dismemberment insurance (AD&D), which covers you if you die or are injured in an accident.

Frequently asked questions