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September is a month of new beginnings for many families. There are back-to-school clothes to buy and class supplies to gather. For some parents, it’s time to watch a child head off to college for the first year. We spend time, at least a little bit, looking ahead and making plans for the year to come.

Many of us, however, are missing an opportunity to plan better. September is also Life Insurance Awareness Month (LIAM) and we are in an era where individual life insurance ownership stands at a 50-year low. Some 35 million American households are uninsured, according to the industry organization LIMRA’s 2012 LIAM Fact Sheet, with tragic consequences in store if a breadwinner dies unexpectedly. Many more households admit they need broader life insurance coverage than they currently have, but don’t have the knowledge or resources to obtain it.                                                                                                                           

How should insurers and financial advisors deal with this hidden threat to families’ financial security? I say it’s back-to-school time for our existing and potential customers. There are many misperceptions about costs and options involving life insurance, and we need to make a recommitment to education, starting this month.

Let’s start with one of the biggest barriers to life insurance ownership–the perceived cost. A joint study this spring by the LIFE Foundation and LIMRA found that 83 percent of consumers deem life insurance as “too expensive.” Yet Americans overestimate the cost of annual life insurance premiums by almost three times the actual cost, according to that same study. It’s hard to make informed decisions when you’re so far off the mark.

Another issue is competing financial priorities. The economic downturn has put pressure on many families’ finances, and short-term problems with making a mortgage or rent payment often trump best intentions when it comes to long-term security.

Let’s also remember that competing priorities aren’t just an issue for consumers. Financial advisors spend much of their time talking about products other than life insurance, such as retirement savings, education funds and long-term care options for elderly parents. I would argue — and, in fact, we all should — that life insurance is a foundation that makes each of those other plans possible. Nothing can plunge a family into crisis faster than the death of a person who is the primary source of household income, and yet isn’t insured adequately.

That last point brings up another issue that often bedevils consumers: How much life insurance coverage is enough? For many families, this becomes a sticking point that they never solve, so they end up not getting coverage at all. I think we can agree on the basic premise that some coverage is better than none.

There are plenty of rules out there for what constitutes adequate coverage, but we make this needlessly complex for consumers. It really comes down to a few simple calculations:

  • How much debt would you have to pay off if you died prematurely? Add in mortgages, student loans, car payments, funeral costs and the like.
  • How much money would your family need to get by on an annual basis?
  • What period of time would you need to compensate for? Remember, life insurance is paid out as a lump sum, and a young family with several children will need replacement income for a lot longer than an empty-nester couple nearing retirement.

Another point we could make more strongly with consumers is that life insurance needs aren’t static. You might carry a lot of life insurance in middle age, but you might not need any in retirement if you’ve saved and invested well. For some families, analyzing life insurance by life stage can make the process less intimidating. A sensible choice doesn’t have to mean a 30-year commitment akin to a mortgage. Insurance coverage can, and really should, be adjusted as needs change.

I’m a big believer in term insurance, particularly when it comes to large, underinsured blocks such as the middle market. We’re starting to see more innovative products in this area and any education initiative for consumers would be wise to highlight some of them. One example is our PruTerm WorkLife 65, which provides coverage through age 65 and includes premium waivers in some circumstances if a person becomes unemployed or disabled. That’s a real-world policy, and we’re seeing more and more of these creative products coming from the industry.

Consumers are eager to talk about life insurance if a financial advisor or person they trust initiates the conversation. Yet six in 10 consumers don’t recall being approached to buy life insurance in the past two years, according to LIMRA’s Fact Sheet. Insurers need to make sure their sales representatives ask potential customers about their coverage needs, and then follow up. And we should be providing information through an array of channels, from face-to-face seminars to online portals and social media postings. 

We live in a broad, diverse society, and our messaging on life insurance has to be flexible enough to resonate with different groups. A Gen Y consumer may worry about student loan debt and caring for his or her parents down the road, while an African-American couple in their 60s may be chiefly concerned with retirement savings and low-risk investments.

Knowing the characteristics of different segments is important for educating consumers about life insurance, but the key is knowing the individual goals and concerns of each family we want to enlist as customers. To do that, we need to start a dialogue with consumers about coverage, one that extends on many fronts. Come to think of it, September seems like a good time to start.

Life insurance is issued by The Prudential Insurance Company of America and its affiliates, Newark, NJ. PruTerm WorkLife 65 is issued where available, by Pruco Life Insurance Company.  Product is not available in all states. Each company is solely responsible for its own financial condition and contractual obligations.