We have a problem. According to LIMRA, a high percentage of Americans don’t know much about life insurance, and if they don’t understand it, they are not going to buy it. In a recent test, LIMRA gave 4,000 people a life insurance IQ test to gauge their knowledge and understanding of life insurance. Only 1,200 passed the 10-question exam, and the majority answered fewer than five questions correctly.
Those who knew the most about life insurance cited multiple sources of information that attributed to their understanding of life insurance. They also owned life insurance and heard about it through work, a seminar or financial planner. Most were older, more educated and viewed life insurance as important. But out of the entire group, less than 1% of those who took the test answered all ten questions correctly.
One of the top reasons consumers give about why they don’t buy life insurance is because it is “too confusing.” The study showed that consumers with a better understanding of life insurance have a higher level of confidence in insurance companies than those less knowledgeable about life insurance.
Ownership of life insurance is at a 50 year low, even though last year showed an increase in the number of policies purchased. Seventy-five million families depend on life insurance to protect their loved ones, but according to the Census Bureau, there are 112 million families in America. That means one-third of the families have no life insurance, and many of those insured are under insured.
According to the 2012 LIMRA and LIFE Barometer Study, the amount of insurance owned is less than four times the typical individual’s annual income. The correct amount to own, based on the individual’s age, should be 10 to 20 times their current income. Based on a study by Swiss Re, the total amount of underinsurance may be as much as 22 TRILLION dollars.
As an advisor myself, I understand that we have a lot of work to do in the life insurance industry, and the first thing to be done is to educate Americans about the need to take personal financial responsibility by utilizing life insurance and related products in this process, and that is what the LIFE Foundation is all about.