A study released Tuesday by LIMRA found that among underinsured U.S. households, 17 million, or half of them, may be ready to buy life insurance policies in the next year.
For the report, “Trillion Dollar Baby Growing Up,” LIMRA calculated the number of households that admit they are underinsured, and the number that think they might buy insurance in the next 12 months. The agency measured the gap between the amount those people said most consumers should own, and the amount they themselves own.
“The greatest challenge is not getting them to understand they need life insurance, but rather getting them to give it a high enough priority to investigate coverage now,” Cheryl Retzloff, senior research director, LIMRA Markets Research, said in a statement. “These consumers need help to decide what type to buy, how much coverage they need and how life insurance can play an important role in their overall financial security.”
In 2004, LIMRA estimated that life insurance sales would increase by $9.5 trillion if the then-48 million uninsured households bought the coverage they said they needed.
Opportunities have doubled since then, according to LIMRA, as 58 million households said they needed more coverage in 2010, representing a sales potential of $17.5 trillion.
LIMRA’s 2011 Insurance Barometer Study, released in July, found that while most consumers agreed that life insurance is important for “most people” to own, just 70% thought they needed it, and only 63% had actually purchased it.
The new report found that Generation X households are the most likely to be thinking about buying life insurance in the next year. Three-quarters of Gen X households are married and half have a child under 18, LIMRA found.
The study identified three reasons for households’ reluctance to buy life insurance.
- Competing financial priorities — The top two reasons consumers delay buying life insurance are because they have other financial priorities or because they think they can’t afford it. In light of the tough economy, consumers need help to figure out how to fit the life insurance premium into their budgets.
- Lack of knowledge — Among those likely to buy in the next year, at least half are stalling because they don’t know how much to buy, what type to buy, or are worried about making the wrong decision. The report found 44% that say they need life insurance say they haven’t bought because they don’t know how much to buy.
- Procrastination and reluctance to initiate buying — Fifty-four percent of those likely to buy life insurance in the next year haven’t done so yet simply because they just “haven’t gotten around to it.” Over one-third of these consumers say they have not bought life insurance because no one has contacted them.
The top three reasons that U.S. households purchase life insurance, LIMRA found, are to pay burial and other final expenses; to replace the income of primary wage earners; or to pay off the mortgage. Marriage, divorce, having a child, or experiencing the death of a relative or close friend were also named as major influencers in a purchase decision by 45% of consumers.
Advisors have no small influence on consumers’ decision to buy insurance, though. Nearly one-quarter of consumers said they shopped seriously for life insurance because their advisor suggested it. Almost the same percentage of underinsured households said they hadn’t made a purchase because they were “not approached to buy life insurance,” Retzloff said.
“Companies and producers need to find a better way to reach American households,” she said. “Clearly, there is a large market interested in buying life insurance.”