Insufficient life insurance coverage, many worry
A majority of consumers are not convinced that their life insurance coverage is sufficient for their beneficiaries, according to a new survey from 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.
- Recipients often need more than funeral expenses covered, so consider multiples of current income
- Dealing with living expenses and home, car and medical debts are important considerations
- Check the adequacy of your coverage with the help of financial planners.
- Beneficiaries should be aware of the policy, its location and conditions.
Many consumers are unsure if their life insurance coverage is sufficient
The NAIC survey results reveal that 54% of respondents are uncertain 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 payment to cover future living expenses, according to the survey.
The situation is reflected in the conclusion 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 buy life insurance or add to their policies because they did not know not how much coverage they need and what type to buy.
This problem would reflect the lack of confidence in the coverage that the NAIC sees.
Life insurance isn’t just for funeral expenses
âTheir feelings are absolutely justified,â says Elsie Theodore, regional vice president and director of Virginia-based Primerica. Many believe that life insurance is there just to cover funeral costs, she notes. But once these basic costs are covered, without the income of the deceased, a family’s âstandard of livingâ could be severely decimated.
Overall, 65% of those surveyed by the standard setting body of state insurance regulators said they purchased life insurance that they purchased on their own or through their agency. employer, or both.
But having sufficient coverage is vital, says Theodore.
Empirical coverage and the two Cs
âThe rule of thumb is that a covered person has at least 10 times their covered annual salary,â she advises. If someone has an annual income of $ 100,000, they should be covered for at least $ 1 million, ideally.
We look at a client’s entire life and how long the income will be needed for the children, says Theodore. There are âtwo Csâ: cost and coverage, she notes. Unfortunately, she says, many people focus solely on the costs, but Theodore finds it wise to focus on the âworst case scenarioâ if the breadwinner dies.
So when she advises the families with whom she purchases coverage, Theodore develops a plan that integrates all of their financial obligations, including mortgage debts, 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 policies and their whereabouts.
Almost 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 revised their policies with beneficiaries a year ago or more recently, according to the survey results.
The NAIC followed up on its investigation by offering advice to recipients so that, when the time came, they would be prepared and even know the options for receiving the money owed to them. Knowing these terms is important for consumers.
Tens of millions of dollars in death benefits are actually unclaimed each year because beneficiaries lack key information about the policies of their loved ones, the life insurance company backing them, the amount of the benefit – or even the location of the policies, the NAIC points out. One suggestion, in addition to keeping the policy safe, is to proactively inform beneficiaries or trusted advisors about the location and terms of the policy.
If you think you are owed money under an unclaimed policy
If you suspect that you are the beneficiary of a life insurance policy, but do not have the information you need to collect, the NAIC suggests that its “Life Insurance Policy Locator Service” could help you. Find it here: NAIC LPL.