Why life insurance purchasing decisions remain in limbo

by Leo Almazora06 Nov 2018

The benefit of life insurance should be obvious — a family needs to be cushioned against the loss of income that comes with the death of the primary breadwinner. But just because the benefit is obvious doesn’t mean people will act on it urgently.

In a recent survey of around 1,100 individuals, US-based life-insurance company SBLI found that respondents agree on the importance of protecting the family in the event of their death or their spouse’s death. When asked, 84% said they were willing to fund a life insurance policy for this purpose, while 75% said they would feel comfortable spending up to 2.5% of their annual income on coverage.

“Yet procrastination is rampant when it comes to consumers planning to protect their families,” wrote David Ehrenthal, a senior vice president at SBLI. “A minority – 36 percent – have a plan and have acted on it.”

Breaking down the other respondents that are procrastinating, Ehrenthal said 44% have either never had the conversation with their spouse or admit they don’t really have a plan, while the remaining 20% said they have a plan but haven’t acted on it.

And among the cohort that said they were thinking about life insurance, 80% self-reported having been in the thinking-about-it phase for more than a year, and 57% said they’ve been in that stage for at least three years.

“Life insurance inherently raises the question of mortality, and 43 percent of respondents said they are uncomfortable thinking about it,” Ehrenthal said. But catalysing conversations and events usually spur parents into action, he added, with 60% of respondents saying they develop a plan and act on it because of a personal experience or conversation with a friend or loved one.

Among the 20% of respondents who have a plan but haven’t acted, a third said they believe they can’t afford life insurance, while 41% said they’re not really sure why they have failed to act, or don’t know where they should go to put the plan in motion.

And even though 82% of respondents were confident that their family would be financially protected in case the worst happens to them or their spouse, only around one in five (22%) have actually “run the numbers.”

“Within a parent’s psyche, a neurological tug of war plays out: a hardwired instinct to protect the family from chaos pulling against a powerful resistance to thinking about mortality,” Ehrenthal said. While the tendency is understandable, he said, parents with enough discretionary savings have to recognize and overcome the fear of death that “hijacks” their natural compulsion to protect their offspring.

“At a minimum, for every child born, a life insurance policy should be purchased with a coverage amount that funds a child through college,” he said. “Moreover, when a home is purchased, more coverage should be added equal to the mortgage debt.”

 

Related stories:
Why clients should plan early for ill health in retirement
Why the 'expense' label for life insurance may not apply to businesses

 

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