Insufficient life insurance coverage, many worry


A majority of consumers doubt that their life insurance coverage is sufficient for their beneficiaries, to a new investigation of the National Association of Insurance Commissioners (NAIC).

Key points to remember

  • Many consumers are unsure whether their life insurance coverage will be sufficient for their loved ones.
  • Beneficiaries often need more than funeral expenses, so consider multiples of current income
  • Dealing with living expenses and debts for house, car and medical bills are important considerations
  • Check the adequacy of your coverage with the help of financial planners.
  • Beneficiaries should know the policy, its location and its terms.

Many consumers are unsure if their life insurance coverage is adequate

The results of the NAIC survey reveal that 54% of respondents are unsure or unconvinced that their life insurance benefit would meet the needs of their beneficiaries.

However, most agree that if they died within the next decade, their beneficiaries would need their life insurance policy payout to cover future living expenses, the survey found.

The situation is reflected in the findings of a life insurance research organization that 42% of Americans say their household would face financial hardship within six months if an employee died unexpectedly and 25% would financial difficulties in a month. The LIMRA and Life Happens Barometer study conducted earlier this year found that more than half, or 53%, of Americans surveyed did not purchase life insurance or add to their policies because they did not know not what coverage they needed and what type to buy.

This problem would reflect the lack of confidence in the coverage found by the NAIC.

Life insurance doesn’t just cover funeral expenses

“Their feelings are absolutely justified,” says Elsie Theodore, Virginia-based regional vice president and principal of Primerica. Many believe that life insurance is simply to cover funeral expenses, she notes. But once these basic costs are covered, without the deceased’s income, a family’s “standard of living could be severely decimated”.

Overall, 65% of people surveyed by the standards body for state insurance regulators said they have life insurance that they purchased on their own or through their employer, or the two.

But having enough coverage is vital, says Theodore.

Coverage of the rule of thumb and the two Cs

“The basic rule is that a covered person has at least 10 times their annual salary in coverage,” she advises. If someone has an annual income of $100,000, ideally they should be covered for at least $1 million.

We look at a client’s entire lifetime and how long an income will be needed for the children, says Theodore. There are “two Cs”: cost and coverage, she notes. Unfortunately, she says a lot of people just focus on the cost, but Theodore finds it wise to focus on the “worst case scenario” if the breadwinner dies.

So when advising the families she places coverage with, Theodore designs a plan that incorporates all of their financial obligations, including mortgage debt, unpaid medical bills, car bills and other loans in addition to living expenses. .

Policyholders take important first steps to talk to beneficiaries

Certainly, life insurance policyholders are more proactive in some ways, such as informing their beneficiaries about the policies and their location.

Nearly 90% of those surveyed by the NAIC say their beneficiaries are aware of the policies in place and 76% knew where the actual policies are kept. In fact, about two-thirds of policyholders reviewed their policies with beneficiaries a year ago or more recently, according to survey results.

The NAIC responded to its investigation by offering advice to beneficiaries so that when the time comes, they are prepared and even know how to receive the money that is owed to them. Knowing these terms is important for consumers.

Tens of millions of dollars in death benefits actually go unclaimed each year because beneficiaries lack key policy information about their loved ones, the life insurance company that guarantees the amount of the delivery – or even font placement, the NAIC points out. One suggestion, in addition to keeping the policy safe, is to proactively notify beneficiaries or trusted advisors of the location and terms of the policy.

If you think you are owed money under an unclaimed policy

If you think you’re the beneficiary of a life insurance policy, but don’t have the necessary information, the NAIC suggests that its “Life Insurance Policy Locator Service” may be able to help. Find it here: NAIC LPL.


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