Monday, December 21, 2020

Have Life Insurance? You May Need More

You probably need life insurance if others are depending on you. If the only coverage you have is through your job, though, you may not have enough.

Fortunately, buying life insurance has gotten easier in some ways during the pandemic. Plus, coverage may be cheaper than you think.

The rising COVID-19 death toll has led more people to at least think about their life insurance needs, and many have taken action. One in  four Americans who have life insurance say they purchased or increased their coverage because of COVID-19, according to a NerdWallet survey conducted Oct. 29 to Nov. 2 by The Harris Poll. Many of those who purchased or increased their coverage were motivated by fear of being diagnosed with the disease (30%) or knowing someone who had (29%).

A survey by insurance industry trade group LIMRA this summer found nearly 6 in 10 Americans (58%) say they have a heightened awareness about the importance of life insurance, and about 3 out of 10 (32%) who were shopping for life insurance said it was in response to COVID-19. The number of term policies, the most popular type of life insurance, rose 10% in the third quarter compared with a year earlier, LIMRA found. That was the largest increase in 18 years.

“Obviously, the pandemic is making people much more sensitive to their mortality,” says Alison Salka, LIMRA research director. “So we see more people aware of the need for life insurance.”

This is very similar to the months after 9/11 when people realized they could die sooner or unexpectedly.  

Still, LIMRA has estimated that 30 million American households don’t have coverage, and another 30 million don’t have enough. The average coverage gap between what people have and what they need is about $200,000, LIMRA says.

People think that if they have life insurance through their job it is more than enough, but they haven't really crunched the numbers to see how much their family will need if they die prematurely.

Employer-provided life insurance policies are typically capped at certain dollar amounts, such as $20,000 or $50,000, or limit coverage to one to two times an employee’s annual pay. That may seem like a lot, but parents with young children may need 10 times their salary or more to replace their incomes until the kids are grown.

Even if your need is more modest — your partner requires your income to pay the mortgage, for example — an employer-provided policy might fall short. Plus, you typically lose your coverage if you lose your job, as many Americans have during the pandemic.

Having your own policy means your beneficiaries will remain protected. And thanks in part to the pandemic, you may be able to get coverage faster and without a medical exam (no needles!).

Increasingly, insurers are automating and accelerating the application process, LIMRA’s Salka says. Instead of sending someone to your home to check vital signs and collect blood and urine specimens, some insurers are waiving exams or are exclusively using exam and lab data provided by the applicant’s physician. This trend was already underway, but social distancing and other pandemic challenges mean more insurers are adopting these practices.

Life insurance is often cheaper than people expect. A 30-year-old woman in excellent health might pay $193 a year for 20-year term policy for $500,000. A 40-year-old man, also in excellent health, might pay $341 for the same coverage.

Term insurance covers people for a specified period of time, which is typically 10, 20 or 30 years. (In a previous post we mentioned there are now terms up to 40 and 45 years) Term policies are significantly less expensive than permanent life insurance, which has additional features such as a cash value that can be borrowed against and that grows over time.

But the higher costs of permanent policies can tempt some buyers to skimp on coverage. If you do need life insurance — and you probably do if someone would be financially impacted by your death  — then your priority should be getting enough.

How much do you need? We usually consider things like:

  • Final expense and other costs associated with death. For instance, if you were in the hospital before passing away.
  • Debt. Items like the balance on your mortgage, credit cards and car loans. 
  • Education costs if you have kids and want to take care of  your education. 
  • Income replacement. Your family will still have day-to-day bills to take care of, like car repairs or needing a new stove. 
If you have need any help or have questions drop us a note or book a phone appointment. And in the meantime, please stay healthy!


Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life and disability insurance coverage. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog!

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