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Fewer Americans are buying life insurance than in the past, which suggests households may be at financial risk in the event of an unexpected death, experts said.
About half, or 52%, of consumers had a life insurance policy in January 2023, down from 63% in 2011, according to the results of a poll from Limra, an insurance industry trade group.
Data from the American Council of Life Insurers, or ACLI, a life insurance trade association, shows a similar downward trend: By 2019, coverage had fallen to 59% of households from 69% in 1998.
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“It’s absolutely clear to me there’s a very large gap here,” said Scott Shapiro, U.S. insurance sector leader at KPMG. “There’s a literal protection gap where Americans are flat-out underinsured.”
The main purpose of life insurance is to provide financial security for loved ones if the policyholder dies. At that point, beneficiaries receive a generally tax-free death benefit.
That makes it “kind of a funny product: It’s something we buy and hope to never have to use,” said Matt Knoll, a certified financial planner based in Moline, Illinois.
Why life insurance purchases have ‘steadily’ fallen
Many Americans fail to plan for their mortality, neglecting to draft wills, put a power of attorney in place or designate beneficiaries for financial accounts.
Overall, the share of households with life insurance has “steadily” decreased since the early 1970s, according to the ACLI.
There are likely many reasons for that drop-off.
For one, younger generations are deferring big financial and life milestones such as getting married, buying a home and having kids relative to older generations. Each of these events generally acts as a key trigger to buy life insurance, experts said.
Higher-costing homeownership and child care, coupled with rising debt burdens (for student loans, for example), may mean younger households are less willing or able to pay monthly insurance premiums, said Knoll, a senior financial planner at The Planning Center.
Insurance costs themselves are also generally rising for consumers, Shapiro said.
Additionally, life insurance is often not typically easy or quick to buy due to factors such as medical testing for underwriting, Shapiro said.
“It’s a complex transaction,” he said.
There are more benign factors at play, too: For instance, fewer consumers have sought out the tax benefits of certain life policies as other tax-advantaged savings options, such as 401(k) accounts and 529 plans, have come into existence, Knoll said.
That said, even as fewer people buy life insurance, “I do think there’s a need for it,” he added.
Life insurance isn’t necessarily right for everyone, though. Here are some key considerations.
When to buy life insurance
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Consumers should consider their financial situation…