September is Life Insurance Awareness Month, which is as good a reason as any to cover the important topic. I know that it’s pretty hard to get jazzed about insurance, because it is essentially the vegetable portion of your financial diet.
When I told my publisher that I wanted to include a chapter in my book, “The Dumb Things Smart People Do With Their Money,” on insurance, she sighed and said, “I guess if you have to…” That statement sums up our relationship with insurance: we know we need it, but hate the idea of spending any time researching or buying it.
Yet ignoring an uncomfortable subject does not make it go away. According to a 2019 study conducted by the life insurance industry’s non-profit Life Happens and the research organization LIMRA, families can suffer grave consequences from not having proper coverage. Four in 10 households without any life insurance would have immediate trouble paying living expenses if their primary wage earner died.
The LIMRA survey also found a gap between those who believe they need insurance and those who actually own it. What explains the disconnect between knowing you need something and not addressing that need?
The study’s analysis notes: “Affordability and value are two obstacles that deter consumers from purchasing life insurance. If more consumers understood life coverage affordability, more consumers would shop for coverage.”
While that may be true, the industry itself can often be its own worst enemy. Consumers are flummoxed by complex and heavy-handed insurance sales pitches, not to mention dense policy agreements and disclosure statements. And of course, insurance fee structures often require a special decoder ring to unravel.
There is one product that is easy to understand and affordable: term life insurance. The good news is that term is the best and most appropriate coverage for the vast majority of Americans, who have a specific insurance need for a defined period of time, like a couple with kids who have not yet saved a sufficient nest egg to support their survivors in the event of premature death. You can find online competing quotes for term in minutes. Just remember that the death benefit should cover living expenses for survivors; the lump sum amount necessary to fund future educational expenses; and/or money to provide for the future retirement needs of the surviving spouse.
According to LIMRA, 71% of purchasers bought term policies, but 44% bought permanent policies, which are far more expensive, because they combine the death benefit with a savings or investment component and it remains in force until you die. If a salesperson is making a hard pitch for permanent coverage, consult a fee-only financial adviser, who does not sell insurance, but can evaluate your needs, determine the right type of coverage and refer you to a reputable life insurance agent.
Finally, your insurance needs change over time, so if you have a major life event (marriage, divorce, children or a death), revisit your coverage.
(Jill Schlesinger, CFP, is a CBS News Business Analyst. A former options trader and CIO of an investment advisory firm, she welcomes comments and questions at [email protected] Check her website at www.jillonmoney.com)