New Study Finds Many Overestimate the Price of Life Insurance When Deciding How Much Coverage to Buy
NEW YORK, May 10, 2012 /PRNewswire-USNewswire/ --Term life insurance can provide an essential financial protection for families and its comparatively low premiums make buying enough coverage affordable, according to the Insurance Information Institute (I.I.I.).
However, many Americans are dissuaded from buying adequate life insurance because they overestimate how much it will cost them. A recent study by LIMRA and the LIFE Foundation, two industry-supported organizations, surveyed more than 2,000 Americans in January 2012, and found that 20 percent of those who had some life insurance, and 49 percent of the respondents who said they had no life insurance, acknowledged they did not have enough coverage. Most reported they did not obtain more, or any, life insurance because it was "too expensive."
The survey respondents who admitted they needed more life insurance coverage estimated it would likely cost around $400 a year for a $250,000 term-life insurance policy that would cover a healthy 30-year-old for a term of 20 years. But the real annual premium is closer to $150 in that scenario, according to LIMRA and the LIFE Foundation. Life insurance is also available for purchase by middle-aged and older prospective policyholders.
Term life insurance provides protection for a specific period of time and typically offers the greatest amount of coverage for the lowest initial premium cost. Permanent life insurance, also known as whole life, offers lifelong protection and the ability to accumulate cash value on a tax-deferred basis, but has higher initial premiums than a term policy for the same face amount. The death benefits paid by life insurers are income-tax-free, allowing beneficiaries to replace an income-earner's income, or a family caregiver's services.
"Term life insurance can provide beneficiaries with a very cost-effective form of financial protection," said Michael Barry, vice president, Media Relations, I.I.I.
The face-amount of a life insurance policy—the benefit payable to a policyholder's beneficiaries should the policyholder die while the policy is in force—should be sufficient to do three things.
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SOURCE Insurance Information Institute