Miscalculating : Majority of Americans Overestimate Cost of Life Insurance

The results of the 2015 Life Insurance Barometer — the fifth annual measure of consumer trends and perceptions regarding life insurance, retire- ment and their financial well-being conducted by the non-profit Life Happens and LIMRA – found that while the majority of Americans know they need life insurance, a lack of aware- ness about the cost of life insurance is prevent- ing them from purchasing it.

According to the report: • Cost remains the reason most Americans give for not owning life insurance, but 80 percent of con- sumers misjudge the price for term life insurance; – Millennials overestimate the cost by 213 percent – Gen Xers overestimate the cost by 119 percent • Only about a third of consumers knew that their credit histories and driving records could affect how much they pay for life insurance • Less than half realized their hobbies and lifestyle could impact the cost of their life insurance policy

What’s more — the overestimation of the cost is causing many to prioritize oth- er short-term expenditures over long- term financial security: • 29 percent of Millennials cited saving for vacation as a priority over pur- chasing some or more life insurance; • 23 percent of Gen Xers said paying for recreational activities such as going out to eat, movies or shop- ping was a priority over purchasing some or more life insurance; • 49 percent of those 65 and older cit- ed paying for expenses such as Internet, cable and cell phones as a priority over purchasing some or more life insurance.

The study found that nearly one-third (30 percent) of Americans believe they need more life insurance and more than two in five (43 percent) say they would feel a financial impact within six months if the primary wage-earner died. However, the majority of Americans (54 percent) say it is unlikely they will pur- chase life insurance within the next 12 months.

“We’ve consistently seen over the last five years that consumers think life insur- ance is more expensive than it really is, and now we’re seeing many are also con- fused 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 com- prehensive protection possible.”

Understanding Cost Factors

While most consumers have a mod- erate 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 driv- ing 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 pol- icy,” 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 — four in ten 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 cov- erage they believe they need.”

The Barometer also found that infor- mation about those cost factors may not be reaching potential customers as effec- tively as previously believed. Younger Americans are more likely to use the Internet to shop for insurance, and older Americans are more likely to purchase offline, however the age at when those purchase preferences begins to change occurs at 45 – about a decade later than had previously been thought. This find- ing could help shed new light on the most effective ways to engage specific age groups about life insurance. 60 per- cent of Millennials said the same

What is clear is that while Americans understand the importance of life insur- ance, they continue to prioritize other short-term expenditures, often failing to understand how affordable life insurance can be.

Despite the misconceptions around the overall cost and what factors go into the pricing of a life insurance policy, Americans can lower the cost of their policies, as is widely known: • Living a Healthy Lifestyle: Life insur- ance companies factor in health choices including tobacco use, maintaining a healthy weight and keeping chronic conditions, like dia- betes, under control when calculat- ing life expectancy – a consideration when determining a premium. Reporting weight loss, beginning a tobacco cessation program and fol- lowing prescribed treatment for chronic conditions can all result in savings on monthly premiums. • Non-Health Lifestyle Factors: Other lifestyle behaviors may be just as important to lowering the costs of premiums, including having a safe driving record and maintaining a good credit score. In addition, activ- ities such as scuba diving, recre- ational flying and boat racing can impact the costs associated with life insurance premiums, so it is impor- tant to have a conversation with a financial advisor to review all certi- fications and licenses in advance. • Managing Policy: How one buys and manages a policy can be just as important to lowering the cost of insurance as lifestyle choices. One of the best ways to save on life insur- ance premiums is to buy earlier on in life. Additionally, carriers may offer discounts for those who pay premi- ums annually rather than on a monthly basis. And all carriers agree that an annual review of the policy is an important way to make updates that may result in cost savings.

Study Methodology

The 2015 Insurance Barometer Study was fielded in January 2015 using an online panel, which surveyed 2,032 U.S. adults age 18-75. The data were weighted by age, gender, education, race, region, and income to be representative of the general population. A propensity score adjustment was added to correct for biases inherent in Internet panels. The margin of error in this study is three per- centage points.

About Life Happens

Life Happens is a nonprofit organiza- tion dedicated to helping consumers take personal financial responsibility through the ownership of life insurance and relat- ed products. The organization does not endorse any product, company or insur- ance advisor. Since its inception in 1994, Life Happens has provided the highest quality, independent and objective infor- mation for people seeking help with their insurance buying decisions. The organi- zation supports the insurance industry by providing marketing tools and resources and convening the industry each September for Life Insurance Awareness Month. Life Happens is supported by more than 140 of the nation’s leading insurance company and financial services organizations. To learn more, visit www.lifehappens.org.

About LIMRA

LIMRA is a worldwide research, con- sulting and professional development organization that helps more than 850 insurance and financial services compa- nies in 73 countries increase their mar- keting and distribution effectiveness. Visit LIMRA at www.limra.com.