A surprising 70% of Americans have some form of life insurance, primarily to provide financial security for their families after they’re gone. However, despite the prevalence of these policies, many holders may be navigating their insurance landscapes with significant gaps in their understanding, potentially leading to costly mistakes. A detailed survey by Harbor Life Settlements, encompassing 1,702 U.S. adults across four generations, sheds light on these gaps, revealing how they could be financially detrimental.
Motivations for Purchasing Life Insurance
The primary motivation for purchasing life insurance remains the death benefit, with many policyholders looking to replace income, cover funeral expenses, or create an inheritance. These needs vary significantly with age and family dynamics. For instance, individuals without dependents often prioritize covering future funeral costs, while those with families focus on securing their family’s financial future in their absence.
Interestingly, while term life insurance — known for its affordability and straightforward death benefit — is the most popular, many also opt for whole life insurance for its added savings component. This suggests that while the death benefit is a priority, the added value of a savings feature is also appealing to a substantial segment of policyholders.
Barriers to Life Insurance Acquisition
Cost is a significant barrier, with older adults particularly feeling the pinch as premiums rise with age. Younger adults often forgo insurance, citing good health as a deterrent, not recognizing that premiums are more affordable when younger and healthier. This points to a crucial educational gap that, if addressed, could encourage earlier and potentially beneficial enrollment in life insurance plans.
Knowledge Gaps and Their Consequences
A startling revelation from the survey is the considerable percentage of policyholders who are unaware of the specifics of their insurance type. This lack of awareness is more prevalent among unmarried individuals, those still in the workforce, and adults without dependents. This gap extends to an understanding of life and viatical settlements — options that allow policyholders to sell their life insurance for immediate cash needs, often providing greater value than surrendering policies back to the insurance companies.
The Impact of Misunderstanding Life Settlements
Over half of the surveyed adults are unfamiliar with life settlements, and an even greater number are unaware of viatical settlements. This lack of knowledge is concerning, given that these options can offer significant financial relief, especially to those struggling with premium payments or facing financial hardships. For seniors, particularly those unaware of what a life settlement could offer, this gap could mean continuing to struggle with costs unnecessarily.
Financial Preparedness and Retirement
Many older adults, especially those retired, express concerns about covering their future expenses, with medical and housing costs leading their worries. Life insurance, often overlooked as a potential retirement funding source, shows up strongly in the survey, with many retirees planning to use it to fund their retirement needs.
Closing the Knowledge Gap
The findings underscore the need for better education and resources related to life insurance and the options available to policyholders. Financial advisors play a crucial role in this education, helping clients understand the types of life insurance, the potential for policy liquidation through life or viatical settlements, and the strategic use of life insurance in financial planning.
Conclusion
The Harbor Life 2020 Life Settlement and Retirement Survey illuminates critical areas where policyholders and potential consumers lack essential knowledge, potentially costing them financially. Addressing these gaps through comprehensive education and tailored advice can not only lead to better financial decisions but also ensure that life insurance continues to serve its foundational purpose of providing security and peace of mind.
Survey Methodology
The survey involved 1,702 U.S. adults, providing a broad view across various demographics with a confidence level of 95% and a margin of error of ±2.5%. The insights aim to guide better practices in the acquisition, management, and understanding of life insurance across the U.S.
