From the September 2012 issue of Investment Advisor • Subscribe!

August 21, 2012

The Meaning of Life

September is Life Insurance Awareness Month … whoa, wait; stop. Stay with me.

In addition to National Yoga Month, September is Life Insurance Awareness Month, sponsored by The Life and Health Insurance Foundation for Education (LIFE), a nonprofit organization dedicated to raising awareness of the need for life insurance.

By all accounts, they’ve got their work cut out for them. Despite premiums that are generally lower than a decade ago, LIMRA reported that in 2010, the number of Americans with life insurance coverage hit a 50-year low. Things haven’t gotten much better since. LIMRA now finds three in 10 American households (35 million) are uninsured and half say they need more life insurance.

The top two reasons people don’t buy life insurance are competing financial priorities, and they think they can’t afford it. The latter is especially interesting. In April, LIFE and LIMRA released “The 2012 Insurance Barometer Study,” which 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 the policy would run them about $400 per year, but the report put the cost at around $150.

Forgive the dueling studies, but an especially disturbing one from three Ivy League researchers finds that almost half of Americans die owning less than $10,000.

The study’s authors, James Poterba of MIT, Steven Venti of Dartmouth and David Wise of Harvard, wrote in February, “We find that a substantial fraction of persons die with virtually no financial assets—46.1% with less than $10,000—and many of these households also have no housing wealth and rely almost entirely on Social Security benefits for support.”

Hopefully, you see where I’m going with this. If Americans are dying broke, financial advisors are at least partly to blame. Advisors’ traditional aversion to offering life insurance (at times almost snobbishly so) isn’t helping, and an unbiased second look at the product is well worth the time. Part of it should be spent reading Kevin Kimbrough’s piece, “Life Partners: When Financial Advisors and Life Insurance Experts Team Up, Clients Benefit and Practices Grow,” beginning on page 84. Sure, this topic isn’t sexy, but death rarely is.

Clients benefit, practices grow and, most importantly, heirs and loved ones will be provided for—something that, according to Poterbas, Venti and Wise, isn’t happening as much as it should. Life Insurance Awareness Month is a great time to start.

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