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Swiss Re: Americans Underinsured by USD 20 Trillion

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The protection gap— the difference between the resources needed and the resources at hand to maintain a dependents’ current living standards after the death of a primary breadwinner now stands at $20 trillion in the US.

The findings come from a recent report by The Swiss Re Group, a wholesale provider of reinsurance, insurance and other insurance-based risk solutions headquartered in Zurich, Switzerland.

The report, The Mortality Protection Gap in the US underscores a much talked about issue within the life insurance industry; the fact that Americans, as the report states, are underinsured by “staggering dimensions” and all of the repercussions that blossom out of that statistic.

The report maintains that the prevalence of being underinsured and the mortality protection gap that accompanies it can have real and substantial impacts on the economy and the country’s fiscal health as a whole.

For example, when a primary breadwinner dies and leaves his family egregiously underinsured thus driving the family into relative poverty, that family may seek assistance from public funds which are already over-extended.

The economic hardship that has pervaded and stretched public funds over the last decade has also been a precipitating force for enhancing the protection gap. The study says that since 2001 the protection gap has increased by 10 percent while life insurance coverage per family has declined by 24 percent over the same period.

For every $100 of protection needed, families that have a primary earner under 55 years of age have only $32 of net assets and life insurance in place (down from $46 in 2001). The demographic most affected by the protection gap are families where the breadwinner is between the ages of 35 and 44 years old.

The life insurance industry may need to become more proactive; finding new ways to convey to American families that life insurance is, in fact, affordable. Since 2007, new individual life sales have declined at an average annual rate of five percent. A large segment of the population have also allowed their polices to lapse.

The study found that Americans are aware of the merits of owning life insurance. They are also aware of the dangers that accompany being underinsured. The fact is, simply, that many are not aware that they can afford to purchase  the correct amount of coverage.

Declining household income over the last decade has played a major role in defining the current American families spending habits as well has having a reverberating affect as to what how a family’s fiscal psyche operates; they may think that they can afford less than they really can.

Therefore, the challenge for insurers is to explain to families the affordability of many life products. In many cases, the resources that a family would need to buy enough coverage for mortality protection are within reach, with the cost being about 0.4 percent of household income on average.


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