American families going without life insurance, but at what cost?

Justin Stoltzfus

Many Americans won’t find out how much they need life insurance until it’s too late.

According to LIMRA, a trade group for the insurance and financial services industries, the number of households with life insurance is at a 50-year low. LIMRA’s 2010 Life Insurance Ownership Study shows that:

• Insurance companies issued about a million fewer policies in 2009 than in 2004 and only half as much as they did in the mid-1980s.
• More than 30 percent of American households don’t hold life insurance policies, and fewer than half (44 percent) have individual plans.
• More than 11 million American families with children under 18 remain uninsured.
• The majority of families with children under 18 would be in immediate jeopardy if the primary breadwinner died.

To some, these figures are not surprising. Besieged by ever-rising costs for health insurance, auto insurance, homeowner’s or renter’s insurance (insurance that fulfills immediate needs), many families think it makes sense to hold off buying life insurance. Some may be banking on their assets to cover costs in the event of an unlikely death, while others simply may be unwilling (or unable) to pay more premium dollars.

Regardless of why some of the neediest life insurance markets are going without coverage, many personal finance experts agree it’s important — and often has lower premiums than other types of insurance.

Life insurance, according to the Insurance Information Institute, is critical for families. A breadwinner’s income is usually the main source of revenue for a family. Life insurance can safeguard the family against poverty if the breadwinner dies. The Insurance Information Institute recommends looking at existing salaries and employee benefits and then buying a life policy to match those costs. Even though it may be a hassle, having the peace of mind can be worth the expense.

If premiums are too much for the family budget, the Insurance Information Institute offers some options for those thinking of canceling their policies. Those with permanent life insurance policies “cash out” their policies for their cash savings, although the coverage will be terminated. Another option is a “non-forfeiture” agreement, where the policy may remain effective, but with lower payouts. These options are available only for permanent, as opposed to temporary, life insurance policies.