Winston Churchill said this about using life insurance to protect the economic value of a human life: “If I had my way I would write the word insurance over the door of every house because I am convinced that for the sacrifices which are considerably small, families can be secured against catastrophes which would otherwise smash them up forever.”
The political commentator, humorist and international celebrity Will Rogers said this: “A man who dies without adequate life insurance should have to come back and see the mess he created.” Rogers later died, in 1935, in a plane crash in Barrow, Alaska–and life insurance benefits were one of his estate’s largest and most important assets.
Yet today, government statistics show that average Americans are purchasing less life insurance than ever as a means of protection and thrift. About 68 million Americans have no life insurance whatsoever, according to LIMRA International, Windsor, Conn.
Life insurance purchases as a percentage of the population probably peaked in 1950. In that year, with the total U.S. population at 150 million, Americans purchased 20 million policies. This means that roughly 13% of the population purchased life insurance that year. In 1980, the population had grown to 226 million, but Americans bought only 17 million policies–roughly equivalent to 7.5% of the population. By 2004, the population hit 293 million, but Americans only purchased 12.5+ million policies, so roughly 4.2% of the population bought new life policies that year. (Population data from the U.S. Census Bureau. Policy purchase data from LIMRA and National Association of Insurance Commissioners.)
Life insurance is not only a way to protect dependents in the event of a premature death; permanent cash value life insurance is used consistently throughout world economies as a core component of the overall savings strategies and as a retirement funding instrument.
Yet Americans are some of the worst savers in the industrialized world. Statistics from the International Monetary Fund in 2005 show that the Japanese save as much as 30% of their income; the Italians, Germans and Canadians, as much as 20%; and the British, 10% to 15%. By comparison, the actual savings rate in America was negative, -1.7%. Of the Americans who do save, a good many send discretionary money into mutual funds, which lack the guarantees of life insurance.
Financial advisors need to get back to the fundamentals of economic replacement of human life value when advising clients about life insurance purchases. Advisors also need to re-educate consumers about the value of life insurance as a proven methodology to save money.