Saving You Money For Life

According to a recent study by New York Life Insurance company, American families, already confronting a difficult economic environment, face the danger of missing widely-held goals such as paying off a mortgage, funding a four-year college education or financing a secure retirement because their life insurance policies don’t provide adequate protection.

A detailed analysis of self-reported financial objectives revealed that Americans typically have just 49 percent of the financial protection they need to achieve their own stated financial goals for their families. This Life Insurance Gap exists despite the fact that over 80 percent of American breadwinners surveyed feel they have enough life insurance coverage. The Life Insurance Gap translates into a median shortfall of almost $300,000 in coverage for the typical American family.

According to the survey, breadwinners reported a median of approximately $300,000 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 $589,378. When contrasted with the $300,000 median amount of actual life insurance coverage, the typical American family faces 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.

The Life Insurance Gap survey examined the financial planning attitudes and behaviors of 1,003 Americans age 25 and over with dependents, with a particular focus on what they want their life insurance policies to cover in the event of the death of the breadwinner.

A Disconnect Between Perception and Reality

Despite the existence of the Life Insurance Gap, Americans believe they have enough life insurance to protect their families. About 80 percent of respondents stated that they are at least somewhat confident that they have enough coverage. Even more revealing was the fact that 64 percent believe that their standard of living would not decline if the breadwinner in the household passed away.

However, according to the study, household breadwinners have enough life insurance, on average, to cover expenses for only four years after the loss of the breadwinner.

The study found that Americans are clearly concerned for their families’ well-being and safety. Over half of the respondents believe that it is very important to have life insurance to protect their family. However, even though most people understand the basic need for life insurance, buying it isn’t necessarily a direct result, because only 20% of respondents have enough life insurance to meet their self-reported needs. In fact, life insurance is seen as less important than many other ways people protect their families. Even though inadequate life insurance coverage can have a dramatic impact on a family’s standard of living, only about half of the survey respondents said they felt that purchasing life insurance is very important, in contrast with other critical areas for family protection such as driving safely (95%), wearing seatbelts (95%), and regularly testing smoke detectors (70%).

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