I recently came across the 2015 Barometer Study by LIMRA, a worldwide insurance and financial services research organization. What it found shocked me: 80 percent of consumers misjudge the price for term life insurance. That’s not all. Millennials overestimate the cost by 213%, and Gen Xers overestimate the cost by 119%. It also found nearly 30 percent of Americans believe they need more life insurance, but the majority say they are unlikely to buy life insurance in the next 12 months.
Why aren’t we buying life insurance like our parents’ generation? Are we less responsible? Do we love and care for our families less?
I personally don’t have a good single answer.
I often hear from advisors who describe what consumers think shopping for life insurance is like. Many people feel shopping for life insurance is a maze in which they can easily get lost. There are so many options and not always one single path to achieve the same goal. One of the issues may be many consumers do not fully understand life insurance products and the benefits they offer. So they tend to avoid or defer making their buying decisions.
Take for example, Apple products. Consumers feel they are sexy looking and they can see the value all the time. It also can feel cool(er) to own these products and belong to the ecosystem. On the other hand, life insurance products are intangible. It is a hard to see the value until the day your family needs it. It is also a difficult topic to bring up about your own death.
I consider myself a modern consumer who likes to do my own research before I make any purchases online or offline. However, as an experienced pricing actuary in the life insurance industry, even I found it difficult to find objective and non-sales driven information online about life insurance.
I primarily operate with my left brain for what I do and English is not my first language. Writing a blog to me is as challenging as to pass actuarial examinations or survive the Wharton MBA program. But I want to make a difference. I want to educate and help you, as a modern consumer, explore and navigate your insurance needs in this complicated life insurance market.
How much do you think life insurance costs?
Since I deal with numbers in my work, let’s take a look at some of them.
Do you know how much $250,000 coverage for a 20-year term life insurance policy would cost?
It only costs about $20 a month to protect your family. $20 a month. This is about the cost of two tickets for a movie with medium sized popcorn or the cost of a night dining out. Now I admit that is the average cost if you are a 40-year old non-smoking male. Which means it could cost less if you’re younger or more if you’re older, or if you smoke. But my point is that term life insurance can cost so little, why aren’t you buying it?
Term life insurance is a cheaper form of life insurance. It covers you for a certain period of time, such as 10, 15, 20 and 30 years. People typically choose a term period that covers them until the mortgage or other loans are paid off, or/and the children graduate from college.
The Term life policy would pay out the money (coverage) if you die during the term period.
I had brunch with a mutual friend a month ago. The life insurance topic came up after the husband made a joke about actuaries. (Yes, I get this a lot since everyone thinks as an actuary I know when they are going to die.) The husband is a corporate lawyer and the wife is a stay-at-home mom. They are both in their late 40’s and have two kids. I politely gave him a smile and asked “Do you have a life insurance policy?” He confidently told me “I have a 15 year term life insurance policy. I am the breadwinner in the family and want my family to fulfill their dreams even if I die. I hope we will save enough to pay off the mortgage loan and for retirement funds by the end of the 15 years. Then we will no longer need the life insurance.” He’s right. Term life insurance is a perfect financial solution for his family needs. I admire him for taking the steps to protect his family.
You will probably be a good candidate for a term life insurance policy if you only need protection for a period of time and do not need the savings component some other types of insurance offer. (I’ll talk about those in other blog posts.)
Is buying a life insurance policy a waste of money?
Some people think buying a life insurance policy is a waste of money. I agree with them 100% if you are single and don’t have any dependents. Why waste the money on life insurance? You would be better off to save or invest that money.
But if you have dependents, let’s play a mental “future game”. Imagine how life would change for your loved ones if they no longer had your financial support. Imagine that your family loses the source of income to keep the house, your partner loses his or her financial safety blanket, and your children lose the money for college.
It is no different than buying car insurance. You don’t buy car insurance and hope to get into a car accident. You buy it in case you have an accident. It’s the same with life insurance. This just gives you peace of mind and financial security for your family if the unfortunate happens to you.
Buying life insurance, to me, is a final loving act. I want to see my loved ones carrying on life without financial hardship even if I can’t experience life with them anymore. I want my loved ones to have a safety net to live the life we dreamed about. I want my loved ones to celebrate life even without me. I guess this is the least I can do for them.
I took my action to protect my loved ones. Have you?