Cost is the reason most Americans give for not owning life insurance, according to the 2015 Insurance Barometer Study, released recently by Life Happens and LIMRA. Yet, 80 percent of consumers misjudge the price for term life insurance, with Millennials overestimating the cost by 213 percent, and Gen Xers overestimating the cost by 119 percent.
Nearly one third (30 percent) of Americans believe they need more life insurance and more than 2 in 5 (43 percent) say they would feel a financial impact within 6 months if the primary wage-earner were to die. However, the majority of Americans (54 percent) say it is unlikely they will purchase life insurance within the next 12 months.
“We’ve consistently seen over the last five years that consumers think life insurance is more expensive than it really is, and now we’re seeing many are also confused as to what factors determine the cost for life insurance,” said Marvin Feldman, CLU, ChFC, RFC, President and CEO of Life Happens. “We need to help educate the public about how affordable life insurance can be and the factors they can control to ensure they get the best and most comprehensive protection possible.”
Understanding cost factors
While most consumers have a moderate understanding on how age and health factors can affect the cost of life insurance, many are unaware of other factors that can impact how much they pay for life insurance.
“Only about a third of consumers knew that their credit histories and driving records could affect how much they pay for life insurance, and less than half realized their hobbies and lifestyle could impact the cost of their life insurance policy,” said Todd A. Silverhart, corporate vice president and director, LIMRA Insurance Research.
“In addition to believing life insurance is too expensive, our research has shown that consumers are intimidated by the process of buying life insurance — 4 in 10 don’t know how much they need or what to buy. Having a better understanding about the factors that influence pricing might help consumers feel more confident and encourage them to pursue getting coverage they believe they need,” Silverhart added.
Information about those cost factors may not be reaching potential customers as effectively as previously believed, the study notes. Younger Americans are more likely to use the Internet to shop for insurance, while older Americans are more likely to purchase offline.
However, the age when those purchase preferences begin to change occurs at 45– about a decade later than had previously been thought. This finding could help shed new light on the most effective ways to engage specific age groups about life insurance.
Most Americans continue to put other financial priorities ahead of purchasing life insurance. However, those priorities vary by generation:
- 29 percent of Millennials cited saving for vacation as a priority over purchasing some or more life insurance.
- 23 percent of Gen Xers said paying for recreational activities, such as going out to eat, going to the movies, or shopping, was a priority over purchasing some or more life insurance.
- 49 percent of those 65 and older cited paying for expenses such as the Internet, cable and cell phones, as a priority over purchasing some or more life insurance.
- 60 percent of Millennials said the same.
What is clear is that while Americans understand the importance of life insurance, they continue to prioritize other short-term expenditures, often failing to understand how affordable life insurance can be.
Lowering the cost of insurance
Despite the misconceptions around the overall cost and what factors go into the pricing of a life insurance policy, there are a few easy ways all Americans can use to lower the cost of their policies:
- Living a Healthy Lifestyle: Life insurance companies factor in health choices, including tobacco use, maintaining a healthy weight and keeping chronic conditions, like diabetes, under control when calculating life expectancy – a consideration when determining a premium. Reporting weight loss, beginning a tobacco-cessation program and following prescribed treatment for chronic conditions, can result in savings on monthly premiums.
- Non-Health Lifestyle Factors: Other lifestyle behaviors include having a safe driving record and maintaining a good credit score. In addition, activities such as scuba diving, recreational flying and boat racing, can impact the costs associated with life insurance premiums.
- Managing Your Policy: How you buy and manage your policy can be just as important to lowering the cost of insurance as your lifestyle choices. One of the best ways to save on life insurance premiums is to buy earlier on in life. Additionally, carriers may offer discounts for those who pay premiums annually rather than on a monthly basis. And all carriers agree that an annual review of your policy is an important way to make updates that may result in cost savings.
- The 2015 Insurance Barometer Study was fielded in January 2015, using an online panel, which surveyed 2,032 U.S. adults aged 18-75.
By LIMRA and Life Happens