Most People Own Life Insurance Coverage Equal to Three Years’ Worth of Earnings — What Happens in Year Four?
Western States Have the Largest Self-Reported Life Insurance Gap
New York Life Launches Calculator to Help Families Estimate Their Shortfall
June 10, 2014 – NEW YORK–(BUSINESS WIRE)–A unique pair of national surveys looking at life insurance protection conducted before and after the Great Recession finds Americans’ gap in protection has worsened considerably. Americans say they want enough life insurance, on average, to cover expenses for at least 14 years after the loss of a breadwinner – but in reality only have three years of protection in place. The research also found substantial variation in life insurance coverage across different regions of the country.
“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,” said Chris Blunt, co-president of the Insurance and Agency Group, New York Life. “It’s no surprise that Americans are underinsured. What did surprise us was the magnitude of the gap and the fact that it has grown so dramatically since 2008, putting families at even greater financial risk.”
Before the Great Recession took solid hold in 2008, Americans reported a median shortfall between their life insurance coverage and their self-described financial needs of $289,378. Today, Americans are reporting a $320,000 ‘gap’. This represents a 59 percent shortfall 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 gap has grown by 11 percent since 2008, putting Americans in even greater danger 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.
A Widening Gap
Year Amount of Coverage Amount Needed Coverage Gap
2013 $220,000 $540,000 $320,000
2008 $300,000 $589,378 $289,378
The Life Insurance Gap survey examined the financial planning attitudes and behaviors of 1,000 Americans age 25 and over with dependents. It focused on how much life insurance coverage they had in place and what they want their life insurance policies to cover in the event of the death of the breadwinner, resulting in a self-reported gap. The study was conducted by The Futures Company and commissioned by New York Life, the nation’s largest mutual life insurer.
Wide Geographic Differences in Coverage
The study found a large disparity in coverage and potential exposure to financial difficulty across different regions of the country. Families in the Western U.S. are wrestling with a gap of more than $450,000, while those in the Midwest are looking at a smaller, but still sizeable, disparity of about $230,000.
Gap by Geographic Region
Region Median Amount Amount Needed Gap
Midwest $201,000 $430,000 $229,000
Northeast $195,000 $529,000 $334,000
South $250,000 $552,000 $302,000
West $250,000 $707,000 $457,000
Perception Diverges from Reality
According to the New York Life study, many Americans’ ability to tackle the life insurance gap is challenged by perceptions about their security and coverage that rarely matches real world facts:
Perception : 60 percent believe they have enough life insurance coverage
Reality: 20 percent have enough life insurance to meet their needs
Perception: Americans want their life insurance to last 14 years beyond breadwinner’s death Reality: Americans have coverage that will last only three years beyond breadwinner’s death
Perception: Majority of Americans want life insurance to cover funeral expenses, cited as the top reason to buy
Reality: The greatest need Americans report for use of the death benefit is for income replacement
Perception: 80 percent of Americans believe life insurance should be purchased in one’s 20s and 30s
Reality: Just 18 percent of Gen Y has individual life insurance*
Perception: Americans give up their life insurance coverage when their children are adults
Reality: Only nine percent said they would reduce their life insurance coverage in the future
Americans Clearly Feeling Worse Off Today
Feelings of financial security have plummeted, with 68 percent of Americans feeling financially secure, compared to 87 percent in 2008. At the same time, 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,” said 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.”
Think You Have a Gap, Go Online Today
New York Life recently launched New York Life’s Gap Calculator, http://www.newyorklife.com/learn-and-plan/gap so Americans can estimate their Gap and gauge their level of financial protection.
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.
The 2008 survey was conducted by the independent research firm Greenwald & Associates. A telephone survey of 1,003 consumers was conducted in May 2008. Participants had to be at least 25 years of age, married and/or responsible for the support of their children, and had to have annual household income of $50,000 or more. The sample was evenly split between men and women. In a similarly-sized random sample survey, the margin of error at the 95% confidence level for the 1,003 consumers surveyed is plus or minus 3.1%.
According to the survey, American breadwinners reported a median of approximately $220,000 in life insurance coverage. Respondents were then asked about the ways they planned to use their families’ life insurance coverage if needed. Options ranged from simply replacing the breadwinner’s income to covering retirement and college expenses. Based on the responses to these questions, the median amount respondents reported they would need from the breadwinner’s life insurance proceeds was $540,000. When contrasted with the $220,000 median amount of actual life insurance coverage, the typical American family faces a 59 percent gap between their financial goals and the money they would have available from their life insurance policies in the event of the breadwinner’s death.
In 2008, American breadwinners reported a median of approximately $300,000 in life insurance coverage, and the median amount respondents reported they would need from the breadwinner’s life insurance proceeds was $589,378. When contrasted with the $300,000 median amount of actual life insurance coverage, the typical family faced a 49 percent gap between their financial goals and the money they would have available from their life insurance policies in the event of the breadwinner’s death.
About New York Life
New York Life Insurance Company, a Fortune 100 company founded in 1845, is the largest mutual life insurance company in the United States* and one of the largest life insurers in the world. New York Life has the highest possible financial strength ratings currently awarded to any life insurer from all four of the major credit rating agencies: A.M. Best (A++), Fitch (AAA), Moody’s Investors Service (Aaa), Standard & Poor’s (AA+).** Headquartered in New York City, New York Life’s family of companies offers life insurance, retirement income, investments and long-term care insurance. New York Life Investments*** provides institutional asset management and retirement plan services. Other New York Life affiliates provide an array of securities products and services, as well as retail mutual funds. Please visit New York Life’s website at www.newyorklife.com for more information.
*Based on revenue as reported by “Fortune 500 ranked within Industries, Insurance: Life, Health (Mutual),” Fortune magazine, 6/16/14. For methodology, please see http://fortune.com/fortune500/.
**Individual independent rating agency commentary as of 6/4/14.
***New York Life Investments is a service mark used by New York Life Investment Management Holdings LLC and its subsidiary, New York Life Investment Management LLC.