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Gap Study reveals when it comes to life insurance, Americans putting family goals at risk

Most people have coverage equal to only three years worth of earnings

According to a recent study, Americans, on average, own only enough life insurance to adequately protect their families for three years after the loss of a breadwinner. The May 2013 study conducted by The Futures Company for New York Life Insurance Company also revealed while 60% of Americans believe they have sufficient life insurance coverage, only 20% actually do. Overall, survey respondents reported a $320,000 shortfall in their coverage. This represents a gap of 59% between Americans’ financial goals and the money they would have available from their life insurance policies in the event of the breadwinner’s death. The coverage gap exists across the demographic spectrum, including middle income families (those with household income of $50,000 to $100,000), women, and Hispanics. This study is a follow-up to one conducted in 2008, when respondents self-reported a coverage gap of $289,378.

“My question is: what happens in the fourth year? If you pass away, your paycheck goes away and your family is still in need of income,” asks Chris Blunt, President of the Insurance Group, New York Life. ”It’s no surprise that Americans are under-insured. What did surprise us was the magnitude of the gap.” Such a shortfall puts Americans at risk of missing widely-held goals such as paying off a mortgage, funding a four-year college education or financing a secure retirement because they lack adequate life insurance protection.

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“This study took a novel approach by asking respondents what they want insurance to cover and comparing it to the coverage they have in place. It shows Americans that it’s not the life insurance industry telling them they need more coverage—consumers themselves are saying they need it,” said Sarah Peterson, senior vice president, The Futures Company.

The study also found Americans continue to feel squeezed financially, as many struggle to strike a balance between paying off debt and building their financial future. Indeed according to the study, many Americans’ ability to tackle the life insurance gap is challenged by perceptions about their security and coverage that rarely matches real world realities:

Perception
Reality
60 percent believe they have enough life insurance coverage
20 percent have enough life insurance to meet their needs
Americans want their life insurance to last 14 years
Americans have coverage that will last only three years
Majority of Americans want life insurance to cover funeral expenses, cited as the top reason to buy
The greatest need Americans report for use of the death benefit is for income replacement
80 percent of Americans believe life insurance should be purchased in your 20s and 30s
Just 40 percent of Gen Yers have either individual or group life insurance (18 percent have individual, 26 percent have group)*
Americans give up their life insurance coverage when their children are adults
Only nine percent said they would reduce their life insurance coverage in the future

Americans clearly feeling worse off today

The study also revealed feelings of financial security have plummeted, with 68 percent of Americans feeling financially secure, compared to 87 percent in 2008. Here are some more concerning statistics from the Gap report:

  • Fewer are confident about the protection they have in place, with 60 percent reporting that they have enough life insurance protection in place compared to 75 percent in 2008.
  • More families are going without any life insurance coverage—22 percent report having no coverage in place, compared to eight percent in 2008.
  • “No doubt the economy has been tough on families—home values sank, the stock market got hammered, and financial assets went way down. Families are scratching for every bit of discretionary income and there is a lot of competition for their dollars. Now, sadly, we learn that five years of penny pinching and cutbacks have extended to the core safety net Americans need to protect their families. We believe this is one area that shouldn’t be ignored,” says Mr. Blunt. “We hope this survey begins a discussion at kitchen tables across the country and that families do what they can to build up their financial protection. Even if you can’t afford the ideal coverage for your needs, something is always better than nothing.”

    Survey methodology
    The 2013 survey was conducted by The Futures Company, an independent third party research company. A total of 1,004 (unweighted) nationally representative online surveys were conducted from April 24 to May 1, 2013. Participants had to be at least 25 years of age, married or with financial dependents and/or have sole or shared household financial decision making power, and had to have annual household income of at least $50,000.

    *Source—LIMRA, Life Insurance Ownership Across the Generations, August 2011

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