An overwhelming majority of consumers are underinsured, new research shows.
That’s the word from Nationwide Financial, which reveals in a survey that 98 percent of consumers who are married, partnered or have a dependent lack enough life insurance coverage to replace their income. The average consumer polled will earn approximately $1.5 million before they retire and currently holds about $300,000 in life insurance coverage, leaving them about $1.2 million short of replacing their income with life insurance.
“Too many Americans make the mistake of assuming that simply providing what may appear to be a large lump sum of money for their beneficiaries will be enough to protect them,” says Eric Henderson, senior vice president of life insurance and annuities for Nationwide Financial.
According to the survey, many consumers are willing to pay enough to close or reduce this income replacement gap; however the average life insurance policy currently replaces just 16 percent of the income the insured person will earn before retirement. While one-third (33 percent) say their most important consideration when purchasing life insurance was replacing their income, only two percent have actually done so completely.
The survey respondents say they are willing to pay an average of $99 per month to ensure their family can maintain its standard of living indefinitely following the death of a bread winner. Less than three in ten (29 percent) believe they can afford enough life insurance to replace their household income.
The survey adds that two-thirds of those who have life insurance are somewhat or very certain they have enough insurance to replace the income they or their spouse/partner would generate for the remainder of their working careers. Just over half (55 percent) think they could replace their spouse or partner’s income.
Despite this relative confidence, when asked how long their family could maintain its standard of living if a breadwinner died, six in ten (62 percent) don’t know or think they could do so for just four years or less. Just over one-third (36 percent) of respondents believe their family could adequately fund the retirement of the surviving spouse or partner.
Just over one in three consumers, the survey states, worked with an insurance agent or financial advisor to determine how much life insurance coverage they need. One in five guessed how much coverage they needed.