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The U.S. Life Insurance Gap

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What You Need to Know

  • Typical consumers think life insurance is about three times more expensive than it actually is.
  • Many low-income consumers see life insurance mainly as a tool for paying funeral costs.
  • Members of historically marginalized groups tend to be unaware of how life insurance can help living policyholders build wealth.

So far, 2021 has had the highest growth in life insurance policy sales in decades. Following many unprecedented circumstances — a global pandemic, months riddled with climate-induced extreme weather, and much more — thousands of Americans decided that life insurance may not be a luxury, but a requirement. Just as COVID-19 and natural disasters have disproportionately impacted low-income Americans, access to life insurance remains uneven. While everyone hopes to be able to protect their loved ones financially for the long-term, the reality is that not everyone can afford to — or may not believe they can afford to.

My firm provides insight and content that insurance sites can use to educate consumers about the policies that will best benefit their specific needs. As a firm, we acknowledge that the first step in making any investment is education. The final decision to invest in life insurance, however, includes several factors: most notably an individual’s income. The correlation between a person’s knowledge about the benefits of life insurance and their overall purchasing power ultimately impacts how accessible life insurance feels to the potential insured.

The first thing that comes to many consumers’ minds when considering insurance is the cost. Over the past two years, the financial concerns around the cost of life insurance increased by over 20%, according to LIMRA’s 2021 Insurance Barometer Study. People often think that life insurance is too expensive or that they can’t afford it, and they estimate the cost to be about three times greater than the true cost. Depending on factors such as age, gender, family health history, and more, term life insurance coverage could cost as little as $10 per month, or about $120 per year.

The discrepancy in people reading about life insurance and purchasing a policy is heavily influenced by wealth, and particularly in the generational trends regarding wealth and financial education.

It is easy to believe that the disparities in life insurance ownership are a product of people simply underestimating the value of life insurance; but the cause is much more systemic. The lack of knowledge about the cost of life insurance is further exacerbated in low-income communities that face greater economic hardships.

Millions of Americans live in scarcity, and a scarcity mindset sees life insurance, or other investments, as a luxury, because the immediate impact of an expense cannot be seen, unlike other, more urgent financial priorities, like buying groceries or paying the electricity bill. Additionally, poorer individuals and families are less likely to be able to put away cash toward the future — especially when the value of the investment comes after you’re gone. The importance of having life insurance while you are still living is simply not communicated to groups that have historically been marginalized. And, as insurers seek to educate new generations of consumers, these same groups continue to be left behind.

Many have the perception that life insurance is only valuable for paying funeral costs, further exacerbating the gap in attaining insurance between wealthy and low-income households.

False perceptions about insurance among groups with less wealth are the product of a history where benefits like health insurance, mortgages, car loans, and suitable life insurance were denied to entire groups of people based on race, resulting in a drastic gap in insurance ownership between Black and white people.

As we continue to look toward recovery from the trials and tribulations of the last few months, insurers may emphasize how people should view the benefits of life insurance during their lifetime, and how it can support their family after they’ve passed. By working more closely with underserved communities to offer and spread awareness about policies for people in varying situations, we can better educate families and individuals on how to use life insurance so they can reap the benefits during and after their lifetime.

While the last 18 months may have revealed the importance of life insurance to a new generation of consumers, the cost of being uninsured cannot be overstated. It has never been more important to close the life insurance gap.


Fountain pen (Image: iStock)Andreja Stevanovic is the executive vice president and head of insurance business at QuinStreet, a company that provides digital media information and tools that can connect consumers with brands.