Consumers are confused about the cost of life insurance, overestimating its cost by nearly three times, a report from LIMRA and the LIFE Foundation found.
The 2012 Insurance Barometer Study, released Wednesday, asked respondents to estimate the annual cost of a 20-year, $250,000 level-term life policy for a healthy 30-year-old consumer. Respondents estimated such a policy would run them about $400 per year, but the report put the cost at around $150.
“If someone offered to sell you a gallon of milk for $10.00, you would likely choose to spend your grocery budget on other necessities, knowing that the actual cost is closer to $3.50,” Marvin Feldman, president and CEO of the LIFE Foundation, said in a statement. “If people think that something is too pricey, they often won’t give it a second thought.”
The truth is, Feldman continued, life insurance is cheaper than ever before, and costs have fallen by about 50% over the past 10 years.
Almost one-third of respondents said they needed more life insurance, but 83% said they hadn’t purchased or increased their coverage because it was too expensive.
“Owning life insurance is fundamental to a family’s financial security, and our industry needs to do more to help educate people about the true cost of protecting their loved ones,” Feldman said.
It seems some groups are at least aware that they need coverage. More than a third of women say they don’t have enough coverage, compared with 26% of men. Young respondents, who were more likely to overestimate the cost of insurance by seven times, also feel they’re underinsured. Among those under 25, 41% say they need more coverage, and 36% respondents between 25 and 44 agree. Key minority groups are also underinsured. Forty-two percent of African Americans and 37% of Hispanics say thye need more coverage.
While a majority of people said they hadn’t purchased coverage because it was too expensive, the top reason for not buying life insurance was simply that they had other financial priorities. The survey found consumers are more worried about paying their mortgage or rent or losing money on investments to shop for life insurance. Half of respondents said having enough money for a comfortable retirement was a higher priority than buying life insurance.
The survey was conducted online by Harris Interactive in January among 2,011 people.