The facts from LIMRA regarding life insurance coverage for Americans are not pretty; over 40% of consumers have no life insurance. The top reason given is that it’s too expensive, followed closely by other financial priorities. I believe a primary reason, even though it may not be stated, is not wanting to confront one’s own mortality.
But another reason has to be . . . it’s complicated! Not only trying to approximate an appropriate amount, but then deciding which of the plethora of options (term, whole life, universal life, variable life, indexed UL, survivorship) will best help you to accomplish your objectives.
The media is absolutely no help. With them (and this doesn’t only apply to life insurance), everything is black or white, there are no shades of gray or nuance. It’s either good or it’s bad. Well that’s seldom true with any topic, let alone one as complicated as life insurance.
Here’s another shocking statistic from the study: of the 41% that have no life insurance, 44% feel that is enough, that is, they don’t need any. While admittedly there is a certain percentage of the population that could get by (not thrive, mind you, but get by without obtaining some form of public assistance) with no life insurance, based on the dismal savings rate and large credit card debt of Americans, I find it hard to believe that that segment comprises 18% of adults.
Life insurance, along with mortgages and savings accounts are the primary financial instruments of the majority of Americans. I guess you could include credit cards in that mix as well. An argument can be made that of those four financial products, life insurance is indeed the most complicated.
But just because something is complicated doesn’t mean one has to be an expert to get the gist of it. Even Einstein’s Theory of Relativity can be explained so that non-physicists can grasp the basics of it. It won’t make you an expert, but you can “get it.”
Same with life insurance. You would have to be an actuary to fully understand a policy; how it was developed, its expected performance, the underlying principles used in its construction, etc. But none of that is necessary to understand how it can help you and your loved ones.
Simply explained, term insurance is akin to your homeowner’s policy. If a covered event happens while the policy is in force (damage to your house with the homeowner’s policy, death with the life policy), a claim will be paid. Easy.
While a claim will also be paid in the event of a covered event (death) with a whole life policy, the insurance company also “reserves” a portion of the premium received to pay the future claim. This reserve is guaranteed and is available to the policy owner during his or her lifetime. Depending on the company, there could also be an additional non-guaranteed element of the reserve, known as dividends, but really just a return of premium.
With the complication reduced, we’re back to too expensive, other priorities, and an uncomfortableness with facing one’s own mortality. All of which will sound ridiculous to your loved ones should you be prematurely snatched away.