Fewer Americans Buying Life Insurance

The number of American households with life insurance is now at its lowest level in more than 50 years. This has put millions of families at significant financial risk should the family’s breadwinner die prematurely.

At present, about 44% of American households have some form of individual life insurance. Another 26% have life insurance through an employer–based plan. That leaves 30% of American households with no form of protection from the calamitous effects of a loss of income.

Even more concerning is knowledge that approximately 11 million American households with children under the age of 18 remain at risk due to the death of a breadwinner. Many of these households are headed by a single parent, which puts an undue strain on the lives of relatives and on the budgets of government welfare programs.

These numbers represent a decline of nearly 39% from 1960 when about 72% of American households owned individual life insurance. The numbers were even higher when adding the number of Americans enrolled in an employer-based plan in the 1960s. Interestingly, this drop in coverage comes at a time when premiums for life insurance have never been lower.

You see, life insurance premiums are based on mortality tables from which insurers calculate the likelihood of premature death. Advances in medicine are responsible for life expectancies in the Unites States reaching 78.8 years in 2015. The longer lifespans means insurers can spread smaller monthly payments over a longer period of time.

Now, despite the trend in lower premiums, life insurers will continue to see falling numbers of policies sold in the United States, which have declined by about 27% – from 40 million policies in 2001 to roughly 27 million policies in 2013. But perhaps more important is something not apparent from those numbers…

You see, in 1960 the average life insurance policy was held for more than a decade before a customer stopped making premium payments. That figure no longer holds true. In 2014, more than 25% of new life insurance policies sold will lapse for non-payment in the first three years after being issued. That figure grows to more than 40% of all life insurance policies after five years.

But this isn’t the only trend working against the sale of life insurance in the United States. Despite several years of moderate improvement in the economy since the height of the financial crisis, the number of workers in the civilian labor force continues to decline.  The number of working Americans is lower now than at any time since 1977 – despite the U.S. population increasing by more than 100 million individuals.

This has resulted in fewer workers earning a paycheck, but something else, too. Growing numbers of family members once on their own are moving back home to live with parents. This is increasing the size of the average American household. It also raises the risk of financial ruin should the primary breadwinner die unexpectedly.

But the problems facing the insurance industry aren’t limited to falling policy counts. Even the 70% of American households that have individual or employer based plans face the consequences of poor decisions.

You see, the main purpose for life insurance is to replace the lost income of a breadwinner. And that means a life insurance policy will need to replace an annual income of about $45,000 per year, according to census data.

But the face amount of life insurance sold in the U.S. has stabilized at roughly $168,000 after rising for nearly two decades. This is an important point.

You see, after paying last expenses and funeral costs, most Americans are left with enough money to replace a breadwinner’s lost income for slightly more than three years. After that, family members will be forced to alter living standards. This often includes the sale of a family home.

It need not be this way. Remember, costs for life insurance have never been lower. It’s possible for a 45-year old male to purchase upwards of $1 million or more of life insurance for less than $50 per month. Of course, the premium will be based on the specific age and health condition of the applicant. But a million dollar policy will easily replace the lost income of a breadwinner.

But the real benefit is that the income is replaced forever – not just three years. And this just might make you a hero to your loved ones.



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