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Low- and Middle-Income Families in the US Are Dropping Life Insurance. Is It a Good Idea?

An increasing number of people in the US, with household earnings below $100,000, are dropping their life insurance. The drop rate has been roughly about 25 percent over the past 10 years. It means that much before the COVID-19 outbreak, many people in the US had already given up their life insurance. 

The 2020 Insurance Barometer Study bLife Insurancey LIMRA and Life Happens has provided interesting insights into consumer behavior after going through the past 10 years’ life insurance and other financial data in January 2020. The data shows that as of January 2020, nearly 46 percent of consumers were without life insurance. Even though around 36 percent of respondents stated that they planned to buy life insurance within the next one year, many of them could not due to poor finances amid COVID-19.

In this post, we will try to get some insights into the life insurance ownership scenario in the US now and in the post-pandemic era.

Why Are More People Dropping Life Insurance in the US?

The drop in life insurance and disability insurance ownership during the past 10 years could be due to a sharp decline in employer-paid group benefits. It shows that consumers still depend on their employers for health insurance

Besides, cost perception may also be a major factor. Nearly 50 percent of millennials think that the annual amount payable towards a term life insurance policy (total value $250,000) by a healthy person (30 years) is $1,000 plus. However, the real cost is just about $160 annually, according to LIMRA.

Healthcare is still expensive in the US, and life and disability insurance should ideally be a crucial part of consumers’ financial planning for future safety. However, only 16 percent of Americans had disability insurance as of January 2020. The percentage is likely to be lower now due to major layoffs in the country as a result of COVID-19. 

Read Also: The Impact of COVID-19 on the US Insurance Sector


How Consumers’ Change in Priorities Has Affected the Life Insurance Industry

A new study by S&P Global showed that the life insurance industry in the US witnessed a sharp decline in the first quarter of 2020 alone. The industry suffered a huge loss of more than $50 billion! Despite the losses, not all types of life insurance are at the receiving end. It is because every insurance product is different. For example, life insurance with annuities and universal life plans have borne the brunt a lot more than term life insurance. In the life insurance industry, almost 50 percent or more of the revenue comes from annuities sale and maintenance. A substantial part of the $50 billion loss was related to the annuities and other life insurance products.

In the coming years, when consumers buy whole life insurance, annuities, or others, they may have to shell out more money. The reason being the expenses faced by insurance companies are likely to go up. As a result, the premiums that consumers pay for life insurance will probably increase too. On the other hand, term life policies are not affected by market fluctuations and those plans are not likely to be expensive. Also, term life plans are more affordable than the whole or universal life policy, which is generally five to nine times more expensive. 

Overall, the COVID-19 pandemic has not had much impact on term life insurance policies, except on the changes regarding underwriting standards and requirements. 

The Reasons Why You Should Keep Your Life Insurance

During these uncertain times, it is difficult for many to keep money aside for life insurance premiums. This looks like a good reason to drop your life insurance policy. However, it is smart thinking to keep your policy if possible. Here are a few reasons.

Provides Financial Protection

Life insurance provides financial protection during difficult times. For example, if your family cannot afford the cost of staying in your home without your income, they may have to sell the house. However, your life insurance policy can help the surviving family members cover expenses, including a mortgage or other debts.

Enables Your Family to Cover Costs of Living

A life insurance policy can help your spouse and children cover their costs of living, educational expenses and other essential expenses. Without insurance, they may have to take a loan (personal or student loan), which will increase their financial burden. 

Help Your Spouse in Children’s Upbringing

If the surviving spouse is a homemaker, a lack of finance can force the person to seek a job to cover expenses. If there are young children, raising them will be difficult, along with additional childcare costs. Life insurance can take care of the household expenses and help the spouse focus on children.

Before We Go

Amid the current turmoil, it is stressful to deal with low finances. However, dropping a life insurance policy to save money may not be an ideal long-term plan. Check if you can adjust your family’s budget by curbing expenses to save money. You can keep aside the saved money to pay the life insurance premium to secure your family’s financial future.

If you are still confused and have doubts, we can help you out. Just give us a call at (650) 328-1000 or fill out the online contact form, and we will be glad to answer your questions.   

  • Jul 24, 2020
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