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A New Year Brings a New Chance to Talk About Financial Security

The arrival of 2014 brings with it the fresh anticipation of everything we hope to achieve while working with a brand-new calendar. For those in the business of providing financial security, it’s the perfect time to meet with clients to set them on a positive course for this year and beyond.

What better way to start the year than by reviewing your clients’ finances and the role of life insurance in their overall plans? LIMRA research has documented the historic low ownership rates of life insurance, with three in 10 U.S. households (35 million) having no life insurance protection at all and half reporting they don’t have enough.

This finding was undoubtedly newsworthy, having strong implications for the industry, but in many ways it was not the most alarming statistic to come out of that research. When consumers were asked about their financial situation if the primary wage earner were to die, only 37 percent indicated that they would be able to cover everyday living expenses well into the future. Ouch! This means that nearly two-thirds of consumers would face financial difficulties in the event that a primary wage earner were to die, either immediately (34 percent) or after several months (29 percent).

Similar but even broader results recently were seen in Canada in the 2013 Canadian Life Ownership Study, with only one in three consumers believing they could cover living expenses well into the future – not only if the primary wage earner were to die, but also if they were to become disabled or critically ill. 

With such a high percentage of the population so vulnerable, one might think that the connection between financial security and insurance coverage would be obvious. Clearly it’s not, but why not? We know from LIMRA research that it’s not because people don’t see the need for insurance protection, with 85 percent of consumers agreeing that “most people need life insurance” and roughly two out of three agreeing both that “most people need disability insurance” and that “most people need long-term care insurance.”

When consumers are asked why they don’t own life insurance (or own more life insurance) there are two consistent, primary reasons offered. The first reason is that they have other financial priorities. In light of the economic challenges experienced over the past several years, the issue of competing financial priorities is certainly understandable. When we look at consumers’ financial concerns, “burdening dependents if I die prematurely” and “burdening others with funeral expenses” are way down on the list behind issues such as having money for a comfortable retirement, paying for long-term care services, paying for medical expenses, and supporting themselves if they become disabled and are unable to work. All the financial issues on this list are legitimate issues that can present an overwhelming challenge to consumers. Which issues are the most pressing for your clients?

The second primary reason given for not owning more life insurance is that it is perceived as being too expensive. To gain some insight into this finding, we have asked consumers how much they actually think life insurance costs. When estimating the yearly cost of a 20-year $250,000 level-term policy for a healthy 30-year-old, the actual cost of the best available rate is grossly overestimated – with a mean estimated annual cost of $360 versus the actual cost of $150. When consumers were presented with the actual cost and then asked how that knowledge would impact their likelihood of purchasing life insurance, one in three said they would be more likely to purchase life insurance with this information.

It seems clear that one way to help consumers to make the right moves is to throw out the misperceptions surrounding life insurance costs and to begin with a clean slate. One of the most valuable roles of an advisor is to help clients figure out the best ways to allocate their limited dollars.

There is much hype each year about making a “New Year’s resolution” – even though it is forgotten almost as quickly as it’s spoken. In 2014, use the opportunity of a new year to encourage your clients to work toward a resolute plan of building financial security with life insurance as a cornerstone.

Todd A. Silverhart, Ph.D., corporate vice president and director of LIMRA's Insurance Research, has responsibility for markets, products and group distribution. Contact him at [email protected] .

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