Household Trends in U.S. Life Insurance Ownership

Transcription

1 Household Trends in U.S. Life Insurance Ownership Full Report Cheryl D. Retzloff, LLIF, ACS Markets Research

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3 A 2010 Report HOUSEHOLD TRENDS IN U.S. LIFE INSURANCE OWNERSHIP 2010, LL Global, Inc. SM This publication is a benefit of LIMRA membership. No part may be shared with other organizations or reproduced in any form without LL Global s written permission ( OA5) Printed in U.S.A.

4 CONTENTS Page SUMMARY... 6 RECOMMENDATIONS... 8 LIFE INSURANCE OWNERSHIP TRENDS Individual Life Insurance Ownership Is at 50-Year Low Average Face Amounts Have Declined INDIVIDUAL LIFE INSURANCE Only Some Household Members Are Covered Few Insured Households Buy Both Term and Perm Insurance Older Households Depend on Permanent Insurance Type of Insurance Affects Amount of Coverage Most Households Buy Individual Life Policies Face-to-Face Households Spend Little for Individual Life Insurance INDIVIDUAL LIFE VERSUS GROUP LIFE Fewer Middle-Income Households Own Both Individual and Group Life More Insured Households Rely on Group Coverage LIFE INSURANCE OWNERSHIP BY INCOME Lower-Middle-Income Households See Largest Decline in Ownership Insured High-Income Households Increase Average Coverage LIFE INSURANCE OWNERSHIP BY AGE Key Age Groups See Huge Declines in Life Insurance Ownership Most Age Groups Increase Length of Time They Can Replace Income... 23

5 Page LIFE INSURANCE OWNERSHIP BY HOUSEHOLD TYPE Life Insurance Ownership for Parents Is at All-Time Low Insured Families With Children Have Highest Amounts of Coverage LIFE INSURANCE OWNERSHIP BY LIFE STAGE Families With Children Are Less Likely to Have Life Insurance Today Years of Coverage Declines for Young Families and Increases for Older Families LIFE INSURANCE OWNERSHIP BY REGION Western Households Least Likely to Own Individual Life Insurance West Has Largest Increase in Amount of Coverage ADEQUACY OF LIFE INSURANCE COVERAGE Number of Underinsured Households Grows Parents and Households Under Age 45 Most Primed to Buy Many Households With Children Not Prepared for Premature Death Households Delay Buying Life Insurance for Many Reasons Many Insured Households Want to Review Life Insurance Frequently Interest in Financial Products and Services Declines Trust Influences the Buying Decision METHODOLOGY RELATED LINKS... 41

6 FIGURES AND TABLES Page Figure 1 Trends in U.S. Life Insurance Ownership Figure 2 Trends in Type of Individual Life Owned Insureds Figure 3 Mean Amount of Coverage by Type of Individual Life Insureds Figure 4 How Households Purchase Individual Life Policies Figure 5 Trends in Need for Life Insurance and Future Purchase Intentions Figure 6 Influences on the Life Insurance Buying Decision Table 1 Trends in Amount of Coverage* Table 2 Household Members Owning Individual Life Table 3 Type of Individual Life Owned by Age of Household Head Insureds Table 4 Annual Individual Life Premium and Number of Policies Owned Table 5 Individual and Group Ownership by Household Income Insureds* Table 6 Individual and Group Ownership by Age of Household Head Insureds Table 7 Ownership by Household Income* Table 8 Mean Coverage by Household Income* Table 9 Ownership by Age of Household Head Table 10 Mean Coverage by Age of Household Head* Table 11 Ownership by Household Type Table 12 Mean Coverage by Household Type* Table 13 Ownership by Life Stage Table 14 Mean Coverage by Life Stage* Table 15 Ownership by Region Table 16 Mean Coverage by Region*... 29

7 Page Table 17 Need for Life Insurance and Future Purchase Intentions by Demographics Table 18 Family s Financial Situation If Primary Wage Earner Dies Table 19 Reasons Households Have Not Bought More Life Insurance Table 20 How Often Insureds Prefer to Review Life Insurance Coverage Table 21 Financial Activities for Which Households Want Help From Professionals Table A-1 Survey Quota Groups and Numbers of Completed Questionnaires Table A-2 Demographic Distribution of 2010 and 2004 Survey Samples Table A-3 Household Income Distributions in 2004 and

8 SUMMARY Periodically, LIMRA looks at how well the industry is doing at reaching U.S. households to meet their life insurance needs. The 2010 study indicates that the industry needs to do a better job to help families understand their financial vulnerability if someone dies unexpectedly. Insurers especially need to find ways to reach more middle-market households. Since first conducted in 1960, LIMRA s U.S. Life Insurance Ownership study has measured trends in life insurance ownership and adequacy of coverage for the U.S. population. In 2010 we surveyed 3,766 households comprising a total of 9,390 persons about the households individual and group life insurance coverage and their attitudes about their coverage. One needs to keep in mind that the current life ownership study was conducted during the worst economic time since the Great Depression. Consumers are living in a world where they have had to cut spending to make up for declines in income, and many are trying to pay off the considerable debt that they have accumulated. Indicators suggest that consumers are delaying any decisions that may have financial consequences: Both marriage rates and birth rates are down; and consumers are delaying all types of purchases, from automobiles, homes, appliances, electronics, and clothing to even medical diagnostic testing. Our study found that consumers are currently reluctant to talk with financial professionals about anything such as savings strategy, retirement savings, children s education funds, investment strategy, and various types of insurance products. While the current economy may have contributed to the large declines in life insurance ownership, it is not the sole reason for some of the largest declines we have ever measured. Life insurance ownership, especially ownership of individual life insurance, has been declining for 50 years during both good and bad economic cycles. Some key findings: Life insurance ownership in the U.S. has hit a 50-year low. Three in 10 households carry no life insurance on anyone in the household, and half of U.S. households now believe they are underinsured. Ownership of individual life insurance declined among all markets low, middle, and high-income households. In the past six years, key markets for life insurance sales saw large declines in ownership of individual life insurance: older married households with children under 18, couples with no dependent children, and middle-income households. 6

9 Despite high unemployment, the study reveals a continuing increase in the proportion of insured households having only group life insurance 37 percent in 2010, up from 32 percent in 2004 and 29 percent in This is primarily due to households with group coverage not buying any individual life insurance. After adjusting for inflation, households with life insurance average almost $280,000 of coverage down $30,000 from six years ago. But they can replace their income for about the same period of time as in 2004, probably reflecting the declines in incomes in the U.S. For the industry, this suggests a possible decline in total premium income, as households need to buy less life insurance to cover smaller incomes. But an opportunity exists to sell additional life insurance to the 43 percent of insured households that think their current coverage is inadequate. Half of households with individual life insurance carry only permanent life insurance and one third depend entirely on term coverage. Few insured households supplement permanent coverage with some lower-cost term insurance, which could be why so many are underinsured. Households with only permanent coverage can replace their income for only 2.7 years, compared with 3.6 years for households with only term coverage and 4.3 years for households with both types. Today 77 percent of husband-wife families with children under 18 have life insurance coverage, compared with 90 percent in The loss of group life insurance coverage is leaving more families with children under 18 without life insurance protection than six years ago. Half of U.S. households have unmet life insurance needs: Fifty-eight million say they do not have enough life insurance. Even among households with $125,000 or more of annual income, one fourth believe they are inadequately insured. Seven in 10 families with children under 18 would have trouble paying their bills if their primary wage earners died unexpectedly. Without the safety net that life insurance can provide, the majority of households have limited time before savings run out to make financial adjustments if the family is to survive the death of a wage earner. About 29 million household heads think they will purchase life insurance for themselves or others in their households in the next 12 months. About 1 in 4 low- and middle-income households and 2 in 10 high-income households say they might buy life insurance in the next 12 months. A gap of over two and a half years exists between the amounts of coverage households believe they need and what they have actually bought. On average, households say they should have enough life insurance to replace their incomes for 6.2 years, but in reality own enough to replace the household s income for only 3.5 years. Households delay buying life insurance for four primary reasons: They have other financial priorities right now, they think it is too expensive, they have difficulty making decisions about the purchase, and they just plain procrastinate. 7

10 RECOMMENDATIONS Contact current clients they may be your best prospects. One third of life insurance owners want to be contacted at least every two years to review coverage and almost half want to review coverage within five years. More than 4 in 10 households that already own some life insurance believe they are underinsured, and 1 in 4 are considering buying more. While these households realize they need more life insurance, they may not take action on their own. You will need to approach them, as many procrastinate and 17 percent say they are waiting for someone to contact them. Target parents and young households. Age is a key indicator of who will buy life insurance soon: The younger the household, the more likely it is considering purchasing life insurance in the next year. The presence of children under 18 in the household is the other critical indicator that a household may be ready to buy. Target middle-market households. Middle-income households have among the greatest needs for life insurance, as many recognize they are underinsured and 1 in 4 are considering purchasing life insurance in the next year. Sixty-four percent of them would either immediately have trouble meeting everyday living expenses or could cover living expenses for only a few months upon the premature death of a wage earner. Since they have limited savings or assets, life insurance proceeds can be the best option to give them enough time to adjust financially. Help consumers prioritize importance of life insurance coverage. In this challenging economy, consumers are delaying many financial decisions. They need someone to explore with them the critical financial risks their families face by delaying insurance purchases. One third of households with no life insurance and one fourth of households with some life insurance say they haven t bought needed coverage because they just haven t gotten around to it. One third of U.S. households admit they would immediately have trouble meeting everyday living expenses if a primary wage earner died and 29 percent could cover only a few months before being in financial trouble. 8

11 Recognize that offering a term insurance option may bring you a sale. The top reasons households put off buying life insurance are they have other financial priorities and they think they can t afford life insurance. Giving them a low-cost term insurance option to provide the extra coverage many think they need may mean the difference between closing the deal and walking away without a sale. Build trust. Trust is the key element that must be present when consumers are deciding whether to buy life insurance. Referrals help, as consumers say they are more likely to buy from a sales representative who was recommended by someone they trust. Also, build trust by tailoring your recommendations to their specific needs. Consumers say they are more likely to buy if the sales representative reviews and analyzes their life insurance needs or if life insurance needs are presented as part of a total financial plan. 9

12 LIFE INSURANCE OWNERSHIP TRENDS Three in 10 U.S. households (35 million) have no life insurance coverage at all 11 million more than just six years ago. Household ownership of individual life and group life insurance both have declined since INDIVIDUAL LIFE INSURANCE OWNERSHIP IS AT 50-YEAR LOW Only 44 percent of households own individual life insurance, and just 34 percent currently own policies they purchased face-to-face. As the size of the agency force declined over the years and alternative distribution options became available, fewer households make their life insurance purchases face-to-face today. From 1984 to 2004, ownership of group life insurance remained steady. In 2010, fewer households have group life insurance than did six years ago, probably reflecting current high unemployment rates. In the past year, someone lose their job in 15 percent of U.S. households. 1 Figure 1 Trends in U.S. Life Insurance Ownership 90% 80% 70% 60% 50% 40% 30% 83% 83% 81% 78% 72% 65% 62% 56% 55% 46% 54% 53% 47% 76% 78% 52% 52% 50% 50% 42% 41% 70% 49% 44% 34% 20% Total Group Individual Face-to-Face 1 Life Insurance in a Tough Economy, LIMRA,

13 AVERAGE FACE AMOUNTS HAVE DECLINED Insured households carry enough life insurance to replace household income for an average of 3.5 years, almost the same period of time as in But after adjusting for inflation, the average face amount owned by insured households is lower than it was six years ago probably reflecting declines in household income. The average amount of life insurance coverage insured households carry declined by over $30,000 in constant dollars since 2004 declining to about $280,000 in Since 1998, the mean amount of individual life insurance households carry grew more rapidly than group coverage did (about a $66,000 increase versus $25,000, respectively). Table 1 Trends in Amount of Coverage* Mean Coverage Median Coverage Any life insurance $251,100 $312,900 $279,900 $134,000 $151,400 $128,000 Individual life insurance** 201, , , , , ,000 Sold face-to-face 208, , , , , ,000 Group life insurance 139, , ,300 73,700 99, ,000 Years of replacement NA NA NA coverage *Coverage is in 2010 dollars **Includes life insurance sold face-to-face and through direct means Subset of individual life insurance Ratio of total insurance coverage to annual household income NA Not applicable 11

14 INDIVIDUAL LIFE INSURANCE Almost 6 in 10 U.S. households do not have anyone covered by individual life. Even among households with individual life policies, only 54 percent cover everyone in the household. ONLY SOME HOUSEHOLD MEMBERS ARE COVERED About 1 in 4 U.S. households insure all household members with individual life insurance coverage, similar to past years. Even among households with individual life policies, 46 percent cover only some household members. Insured households on average own 2.6 individual policies in 2010, compared with 2.4 in Married households with children under 18 own the greatest number of individual life policies and single households have the fewest (3.4 versus 1.9, respectively) (Table 4). Table 2 Household Members Owning Individual Life All Households Insured Households No members covered 50% 50% 56% NA NA NA All members covered % 54% 54% Some members covered % 100% 100% 100% 100% 100% NA Not applicable 12

15 FEW INSURED HOUSEHOLDS BUY BOTH TERM AND PERM INSURANCE Half of households with individual life insurance own only permanent policies and one third own only term coverage. Few households appear to apply a strategy of supplementing their permanent insurance with some lower-cost term coverage. Possibly this is a key reason so many U.S. households that already own some life insurance believe they are underinsured. In 2010, 50 percent of insured households had some term life insurance coverage down from a peak of 59 percent in According to LIMRA s U.S. Individual Life Sales survey, 2010 term life sales are down 7 percent. Rate increases and fewer term product offerings may be making term insurance less attractive to consumers. More than two thirds of households with individual life insurance carry some permanent life insurance and for half of insured households all their coverage is from permanent policies up nine percentage points since The increase in ownership of only permanent life insurance may reflect the recent increase in the popularity of whole life. According to LIMRA s 2010 U.S. Individual Life Sales survey, whole life sales are up 19 percent through June Figure 2 Trends in Type of Individual Life Owned Insureds 20% 28% 36% 32% 58% 43% 41% 50% 22% 29% 23% 18% Term Only Perm Only Both

16 OLDER HOUSEHOLDS DEPEND ON PERMANENT INSURANCE Households whose heads are age 45 and older are much more likely to own permanent life insurance than term insurance. Younger households, under age 45, are just as likely to have bought term insurance as permanent life insurance. Eight in 10 households age 65 and older have some permanent life insurance as part of their individual life portfolios, and 71 percent have only permanent coverage. The younger the household, the more likely it depends only on term life insurance coverage. Few of the younger households carry both permanent and term insurance. Table 3 Type of Individual Life Owned by Age of Household Head Insureds Percent of Households Owning Only Term Only Perm Both Any Term Any Perm Under age 35 54% 41% 34% 43% 12% 16% 66% 57% 46% 59% or older All households 36% 32% 41% 50% 23% 18% 59% 50% 64% 68% 14

17 TYPE OF INSURANCE AFFECTS AMOUNT OF COVERAGE Households that rely solely on permanent life insurance carry one third less coverage than do those with only term life policies. Households depending only on permanent insurance carry enough life insurance to replace their income for only 2.7 years, while households purchasing only term insurance can replace their income for 3.6 years. Households with only permanent life insurance coverage have the lowest amounts of coverage averaging $197,400, which will replace their income for only 2.7 years. Households that buy only term life insurance can replace income for an additional year compared with households buying only permanent life insurance. Households that buy combinations of permanent and term insurance have the best coverage of all, averaging $407,700, which would replace their household income for 4.3 years. Figure 3 Mean Amount of Coverage by Type of Individual Life Insureds Both $407, years* 18% 32% Term only $300, years* Perm only $197, years* 50% Term only Perm only Both *Ratio of household individual life coverage to annual household income 15

18 MOST HOUSEHOLDS BUY INDIVIDUAL LIFE POLICIES FACE-TO-FACE Two thirds of U.S. households bought all their individual life policies in person from insurance agents, brokers, or other financial advisors. Some policies are recent purchases, but others may have been bought five, 10, or even 20 years ago. The higher the household income, the more likely individual life policies were bought through financial professionals. High-asset households ($500,000 or more) and high-income households ($150,000 or more) that usually have more complex life insurance needs are more likely than other households to have purchased all their individual life insurance policies face-to-face from financial professionals (80 percent and 77 percent, respectively). Households that bought only direct from companies, banks, or credit unions, through the mail, by telephone, or on the Internet are more likely to be ages 18 to 24 (35 percent) and single (30 percent). Term life insurance policies are more likely to be bought through direct means than permanent life insurance policies (31 percent versus 20 percent, respectively). Few households bought their individual life insurance policies both in person and through direct purchase. Figure 4 How Households Purchase Individual Life Policies 11% 22% 67% In person only Direct only* Both *Direct from company, bank, credit union, mail, telephone or Internet 16

19 HOUSEHOLDS SPEND LITTLE FOR INDIVIDUAL LIFE INSURANCE Almost 6 in 10 U.S. households spend no money at all for individual life insurance. Insured households put very small proportions of their income toward individual life insurance coverage averaging only 1.5 percent of household income on individual life premiums. Insured households own 2.6 individual life policies, and on average spend $1,057 annually for these policies. Fifteen percent have at least one paid-up policy. Married households with children and high-income households own more policies than other households, thereby spending the most annually for individual life insurance protection. Fourteen percent of insured households have no idea how much they are paying for their individual life policies. Table 4 Annual Individual Life Premium and Number of Policies Owned Annual Mean* Annual Median* Percent Paid-Up** Percent Unknown*** Number of Policies Age of Household Head Under age 35 $1,032 $500 13% 15% , , or older Household Income Under $35,000 $555 $220 14% 12% 2.0 $35,000 $49, $50,000 $99,999 1, $100,000 $124,999 1, $125,000 and over 1, Marital Status Married with children $1,304 $600 13% 14% 3.4 Married no children 1, Not married Insured households $1,057 $500 15% 14% 2.6 *Includes paid-up policies **Percent of households with all paid-up policies or households with some paid-up policies and other policies where the premium amount is unknown ***Percent of households where premiums are unknown for all policies 17

20 INDIVIDUAL LIFE VERSUS GROUP LIFE Households whose only life insurance protection is group life obtained through employers or labor unions carry the lowest amounts of insurance protection. Those households that rely primarily on individual life they purchased themselves or which have combinations of individual life and group life have considerably more coverage. FEWER MIDDLE-INCOME HOUSEHOLDS OWN BOTH INDIVIDUAL AND GROUP LIFE Insured households with incomes between $35,000 and $124,999 show a huge shift away from owning both individual and group life insurance. They are much more likely to carry only one or the other than they did in This is probably due to a combination of factors. In this tough economy, 43 percent of Americans say a major reason they have not bought more life insurance is because they have other financial priorities right now. Also, current high unemployment rates leave more households without access to group coverage through employers. Households owning both individual and group life can replace household income for 4.8 years, about the same period of time as in With the shift away from households owning both group life and individual life, the amount of insurance protection households have has declined. Group coverage will replace income for only 2.4 years, a drop of one year since And individual coverage will replace income for 3.6 years, almost one year less than in Table 5 Individual and Group Ownership by Household Income Insureds* Individual Only Group Only Both Under $35,000 52% 57% 29% 25% 19% 18% $35,000 $49, $50,000 $99, $100,000 $124, $125,000 and over Insured households 28% 29% 32% 37% 40% 34% Mean coverage** $361,600 $249,600 $211,200 $182,800 $482,400 $423,800 Years of replacement coverage*** *The Methodology section describes in detail the income classes used. **Coverage is in 2010 dollars. ***Ratio of total insurance coverage to annual household income 18

21 MORE INSURED HOUSEHOLDS RELY ON GROUP COVERAGE From young to old, today a greater proportion of households rely on group life insurance coverage through their employers to provide them with their only life insurance protection than did in Half of insured households under age 35 and one third between ages 45 and 64 have only group life insurance coverage. As people approach retirement age, they are less likely to rely on group life insurance to provide death benefits. Nonetheless, 1 in 4 insured seniors have only group life insurance. This may reflect older workers delaying retirement because the amounts of funds in their retirement accounts have declined with market downturns in recent years. In 26 percent of households over age 65, someone is still working. Households in the 45-to-64 age group are the most likely to carry both individual and group life insurance. Table 6 Individual and Group Ownership by Age of Household Head Insureds Individual Only Group Only Both Under age 35 20% 23% 47% 51% 33% 26% or older Insured households 28% 29% 32% 37% 40% 34% 19

22 LIFE INSURANCE OWNERSHIP BY INCOME Life insurance ownership increases with household income, but since 2004 the likelihood of having life insurance coverage has declined in every income group low, middle, and affluent. LOWER-MIDDLE-INCOME HOUSEHOLDS SEE LARGEST DECLINE IN OWNERSHIP Only 2 in 3 households with incomes between $35,000 and $49,999 have any life insurance protection down 16 percentage points since This large decline is due to fewer lower-middle-income households owning individual life insurance and/or group life insurance. Ownership of life insurance has declined even among the highest income households. In 2004, only 7 percent of households making $125,000 or more had no life insurance, but high-income households with no life insurance protection doubled to 14 percent in This decline was primarily due to a drop in individual life ownership. Table 7 Ownership by Household Income* Percent Owning Individual Group Any Number of Households Under $35,000 34% 31% 22% 18% 53% 42% $35,000 $49, $50,000 $99, ,490 $100,000 $124, $125,000 and over All households 50% 44% 52% 49% 78% 70% 2,143 3,766 *Coverage is in 2010 dollars. Ownership information from 1998 has been excluded from Table 7 and Table 8 for methodological reasons. Income is collected in broad categories to reduce the effect of consumer nonresponse. The broad income categories make it impossible to match 1998 income ranges with 2004 and 2010 categories. The Methodology section describes in detail the income classes used. 20

23 INSURED HIGH-INCOME HOUSEHOLDS INCREASE AVERAGE COVERAGE In 2010 most income groups carry lower average amounts of life insurance than they did six years ago. Average face amounts declined for both individual life and group life. Since households can replace income for about the same period of time as six years ago, declines in average face amounts could reflect declining U.S. household income. Similar to six years ago, households with incomes under $35,000 and incomes of $125,000 or more carry enough life insurance to replace the household s income for almost four years. Households with incomes of $100,000 to $124,999 make up the only income group to own larger amounts of individual life and group life in 2010 than in Table 8 Mean Coverage by Household Income* Individual Group Any Years of Replacement Coverage** Under $35,000 $ 69,500 $ 67,700 $103,800 $ 68,600 $101,600 $ 79, $35,000 $49, , , ,800 81, , , $50,000 $99, , , , , , , $100,000 $124, , , , , , , $125,000 and over 652, , , , , , All households $295, ,300 $178,500 $165,300 $312,900 $279, *Coverage is in 2010 dollars. Ownership information from 1998 has been excluded from Table 7 and Table 8 for methodological reasons. Income is collected in broad categories to reduce the effect of consumer nonresponse. The broad income categories make it impossible to match 1998 income ranges with 2004 and 2010 categories. The Methodology section describes in detail the income classes used. **Ratio of total insurance coverage to annual household income 21

24 LIFE INSURANCE OWNERSHIP BY AGE The youngest households are the least likely to own life insurance, while households between ages 35 and 64 are the most likely to be covered (60 percent versus 74 percent). But the likelihood of owning individual life has decreased for every age group in the past six years. KEY AGE GROUPS SEE HUGE DECLINES IN LIFE INSURANCE OWNERSHIP Life insurance ownership declined from 87 percent in 1998 to 73 percent in 2010 for households age 45 to 54. This was due to double-digit declines in both individual life and group life ownership. Households age 35 to 44 had the largest decline in group life ownership during the past six years. As group life ownership declined for this age segment, individual life ownership did not increase, dropping life insurance ownership to 75 percent from 82 percent. Ownership of group life increased only for households age 65 or older. In this uncertain economy, older households may be delaying retirement, thereby retaining group life coverage. Table 9 Ownership by Age of Household Head Percent Owning Individual Group Any Number of Households Under age 35 33% 33% 29% 45% 50% 46% 62% 70% 60% , or older All households 50% 50% 44% 52% 52% 49% 76% 78% 70% 1,644 2,143 3,766 22

25 MOST AGE GROUPS INCREASE LENGTH OF TIME THEY CAN REPLACE INCOME Average face amounts owned have increased for some age groups and declined for others in the past six years. But for most insured households, their life insurance coverage will replace household income for a longer period of time today than in Households age 35 to 44 form the only age group that experienced a decline in the average length of time households could replace their incomes declining by almost two years since (See Table 10 footnote for explanation.) The youngest households saw the largest increase in the amount of life insurance the household carries up $75,000 since Since average coverage includes insurance covering each person living in the household, this increase appears to be a phenomenon of the growth in multi- generational households as young adults delay starting their own households because they have limited job opportunities. Today, young adult households are probably more likely than in earlier times to be sharing housing with parents (whose presence increases average household life insurance coverage). Table 10 Mean Coverage by Age of Household Head* Average Coverage Individual Group Any Years of Replacement Coverage** Under 35 $229,400 $267,600 $365,300 $130,200 $168,300 $202,800 $240,100 $254,700 $329, , , , , , , , , , , , , , , , , , , , , , , , , , , , or older 48, , ,400 38,100 77,100 71,100 56, , , All households $201,000 $295,900 $267,300 $139,900 $178,500 $165,300 $251,100 $312,900 $279, *Coverage is in 2010 dollars. **Ratio of total insurance coverage to annual household income The high average individual life face amounts for ages 35 to 44 in 2004 reflect large term policies covering some married couples. Before an inflation factor was applied to 2004 numbers, the original mean individual life coverage for ages 35 to 44 was $534,200 for individual life and $525,900 for any life. 23

26 LIFE INSURANCE OWNERSHIP BY HOUSEHOLD TYPE Married households, with or without children, are considerably more likely to have life insurance coverage than are those who are single. Eight in 10 married households own life insurance, while only 55 percent of single households do. LIFE INSURANCE OWNERSHIP FOR PARENTS IS AT ALL-TIME LOW Today, fewer married households with children under 18 have life insurance than ever before. This is due to large declines in ownership of both group life and individual life insurance. Ownership of individual life has declined 19 percentage points for married households since 1984, and 12 percentage points for single households since Only 57 percent of married households with children under 18 have group life coverage down 12 percentage points since Table 11 Ownership by Household Type Percent Owning Individual Group Any 1984* * * Husband-wife family 70% 65% 62% 58% 51% 60% 60% 63% 62% 58% 88% 85% 86% 89% 80% With children Without children Not married NA NA NA All households 62% 55% 50% 50% 44% 54% 53% 52% 52% 49% 81% 78% 76% 78% 70% *The 1984 information was added to this table to help illustrate the dramatic declines in ownership of individual life for the key family marketplace. NA Not available 24

27 INSURED FAMILIES WITH CHILDREN HAVE HIGHEST AMOUNTS OF COVERAGE Married households, especially those with children, carry more life insurance than single insured households. Life insurance coverage for both single and married households has stayed about the same since 2004 in terms of how long they could replace a primary wage earner s income. Insured married households with children carry enough life insurance to replace their income for almost six years, which is an increase of almost two years since This huge increase was made possible by the availability of low-cost term insurance for these parents. Couples without children under 18 carry enough life insurance to replace their income for 3.2 years, while single households can replace their income for only 2.5 years. Table 12 Mean Coverage by Household Type* Average Coverage Individual Group Any Years of Replacement Coverage** Husband-wife family $255,400 $364,700 $319,200 $159,600 $199,900 $187,300 $331,500 $385,600 $334, With children 334, , , , , , , , , Without children 180, , , , , , , , , Not married $100,200 $132,600 $143,000 $103,200 $125,000 $112,300 $130,900 $158,500 $160, All households $201,000 $295,900 $267,300 $139,900 $178,500 $165,300 $251,100 $312,900 $279, *Coverage is in 2010 dollars. **Ratio of total insurance coverage to annual household income 25

28 LIFE INSURANCE OWNERSHIP BY LIFE STAGE The loss of group life insurance coverage is leaving more families with children under 18 without life insurance coverage than was the case six years ago. Parents, arguably having the greatest need for life insurance, are now less likely than couples without children to have life insurance protection. FAMILIES WITH CHILDREN ARE LESS LIKELY TO HAVE LIFE INSURANCE TODAY Today, 77 percent of young married households with children own life insurance, compared with 87 percent six years ago. This is due to large declines in ownership of group life insurance. The largest decline in ownership of individual life insurance is seen among older families with children under 18. Typically, by age 45, households with children would have financially stabilized and bought some individual life. Today, only 55 percent of older parents have any individual life coverage, down from 74 percent in Table 13 Ownership by Life Stage Percent Owning Individual Group Any Number of Households Under Age 45 Husband-wife family 55% 47% 42% 64% 69% 59% 83% 89% 78% ,055 With children Without children Not married All households under age 45 42% 38% 36% 54% 56% 50% 71% 75% 66% ,880 Age 45 and Over Husband-wife family 68% 65% 57% 62% 58% 57% 88% 89% 81% ,238 With children Without children ,058 Not married All households age 45 and over 58% 59% 50% 49% 49% 48% 80% 81% 73% 729 1,320 1,886 26

29 YEARS OF COVERAGE DECLINES FOR YOUNG FAMILIES AND INCREASES FOR OLDER FAMILIES In terms of the number of years life insurance will replace income, coverage increased for husband-wife families over age 45, but decreased for husband-wife families under age 45 during the past six years. The largest gains in coverage were made by older families, especially those with children, who now carry enough life insurance to replace their incomes for five years. Young families with children carry the most life insurance in terms of both average amount owned ($492,500) and the length of time they can replace their income (5.8 years). Table 14 Mean Coverage by Life Stage* Average Coverage Individual Group Any Years of Replacement Coverage** Under Age 45 Husband-wife family $310,300 $565,000 $459,900 $159,500 $247,300 $231,800 $368,000 $522,900 $423, With children 338, , , , , , , , , Without children 207, , , , , , , , , Not married $128,400 $163,300 $193,600 $126,200 $140,600 $119,800 $168,600 $182,400 $193, All households under age 45 $257,000 $448,000 $372,200 $146,700 $211,900 $195,100 $290,900 $403,800 $346, Age 45 and Over Husband-wife family $210,200 $241,200 $243,000 $159,700 $162,700 $153,300 $299,800 $280,100 $271, With children 323, , , , , , , , , Without children 173, , , , , , , , , Not married $ 85,200 $105,700 $107,400 $ 75,000 $107,100 $104,500 $101,700 $130,200 $132, All households age 45 and over $161,300 $201,500 $205,800 $133,200 $149,300 $140,300 $217,900 $236,400 $230, *Coverage is in 2010 dollars. **Ratio of total insurance coverage to annual household income The high average individual life dollar amount for young families with children in 2004 reflect large term policies covering some married couples. Before applying an inflation factor to 2004 averages, the original mean individual life coverage for young families with children was $519,600 for individual life and $522,800 for any life. 27

30 LIFE INSURANCE OWNERSHIP BY REGION Life insurance ownership differs across the four major census regions. Households in the South and Midwest are more likely to own group life insurance than individual life insurance. Households located in the Northeast are the most likely to have individual life insurance, and households in the West are the least likely to have any life insurance coverage. WESTERN HOUSEHOLDS LEAST LIKELY TO OWN INDIVIDUAL LIFE INSURANCE Ownership of individual life insurance held steady in the West while declining in households across the rest of the country. But only about one third of households located in the West have individual life the lowest rate in the nation. Westerners also are less likely than people in the rest of the country to own group life insurance, probably because more students, more self-employed households, and more business owners reside in this region. Table 15 Ownership by Region Percent Owning Individual Group Any Number of Households Northeast 53% 55% 48% 54% 52% 48% 77% 76% 71% Midwest ,086 South ,076 West All households 50% 50% 44% 52% 52% 49% 76% 78% 70% 1,644 2,143 3,766 28

31 WEST HAS LARGEST INCREASE IN AMOUNT OF COVERAGE After adjusting for inflation, households in all parts of the United States are better insured today than in 1998, but the West experienced the largest increase in average coverage. The West is the only region where the average amount of life coverage has increased since This was due to a large increase in the average amount of group life owned. The Northeast showed the largest declines in individual life coverage in the past six years more than three times the decreases seen in the West and Midwest. Table 16 Mean Coverage by Region* Average Coverage Individual Group Any Northeast $174,100 $326,800 $223,000 $127,300 $216,300 $142,000 $233,400 $355,800 $252,600 Midwest 186, , , , , , , , ,200 South 227, , , , , , , , ,300 West 200, , , , , , , , ,500 All households $201,000 $295,900 $267,300 $139,900 $178,500 $165,300 $251,100 $312,900 $279,900 *Coverage is in 2010 dollars. 29

32 ADEQUACY OF LIFE INSURANCE COVERAGE By their own assessment, half of U.S. households (58 million) believe they need more life insurance. In just six years, the ranks of the underinsured have grown by 10 million households. NUMBER OF UNDERINSURED HOUSEHOLDS GROWS Half of U.S. households say they do not have enough life insurance the highest proportion ever. Similar to 2004, one fourth of all U.S. households think they might buy life insurance in the next 12 months. But among underinsured households, fewer plan to buy soon than did in 2004 (37 percent versus 45 percent, respectively) (Table 17). To be adequately insured, households would like to be able to replace their income for an average of 6.2 years, but actually own only enough to replace income for 3.5 years a gap of two and half years of household income. Figure 5 Trends in Need for Life Insurance and Future Purchase Intentions 50% 42% 39% 44% 23% 32% 27% 25% Needs more life insurance Likely to buy in next 12 months* *Includes Very and Fairly likely to buy in the next 12 months. 30

33 PARENTS AND HOUSEHOLDS UNDER AGE 45 MOST PRIMED TO BUY Twenty-nine million U.S. households think they might buy life insurance in the next 12 months. Having children under age 18 in the household is still a prime indicator that the household is considering buying soon, but many will not take the necessary steps to purchase the coverage they say they need. The younger the household, the more likely it is to be underinsured and to be thinking about buying life insurance in the next 12 months. Parents are as likely to admit they are underinsured as they did six years ago, but they are less likely to be planning to buy life insurance to rectify the situation. Buying life insurance appears to be one more decision families are willing to delay as they struggle in the current economy. Even among households with life insurance, many believe they are inadequately insured 50 percent with only group life, 42 percent with only individual life, and 35 percent with both. Thirty-seven percent of underinsured households plan to buy in the next 12 months, down from 45 percent in Table 17 Need for Life Insurance and Future Purchase Intentions by Demographics Needs More Likely to Buy* Age of Household Head Under age 35 59% 56% 44% 36% or older Household Income Under $35,000 57% 65% 26% 26% $35,000 $49, $50,000 $99, $100,000 $124, $125,000 and over Marital Status Married with children 56% 58% 43% 34% Married no children Not married Types of Life Insurance Coverage Individual only NA 42% NA 23% Group only NA 50 NA 26 Both NA 35 NA 23 Neither Households Saying They Need More 100% 100% 45% 37% Insured households 40% 43% 27% 24% All households 44% 50% 27% 25% *Includes Very and Fairly likely to buy. NA Not available 31

34 MANY HOUSEHOLDS WITH CHILDREN NOT PREPARED FOR PREMATURE DEATH Seven in 10 married households with children under age 18 could meet everyday living expenses only for a few months if a primary wage earner died. Households with no life insurance coverage and low-income households are the most financially vulnerable if a wage earner dies. It is only after reaching age 55 that at least half of the households are able to cover living expenses well into the future if a wage earner dies. This could be because older households usually have accumulated more assets that can be used to give the family time to financially adjust to a decrease in income. Even with insurance, one in four insured households would struggle immediately to pay everyday living expenses if a wage earner dies. Table 18 Family s Financial Situation If Primary Wage Earner Dies How Long Household Can Cover Everyday Living Expenses Immediate Trouble Several Months Well Into the Future Age of Household Head Under age 35 42% 34% 24% or older Household Income Under $35,000 67% 21% 12% $35,000 $49, $50,000 $99, $100,000 $124, $125,000 and over Marital Status Married with children 35% 36% 29% Married no children Not married Types of Life Insurance Coverage Individual only 28% 35% 37% Group only Both Neither Households Saying They Need More 49% 35% 16% Insured households 25% 33% 42% All households 34% 29% 37% 32

35 HOUSEHOLDS DELAY BUYING LIFE INSURANCE FOR MANY REASONS One 1 in 4 U.S. households are primed to buy life insurance: They believe they will buy life insurance in the next 12 months. Many will not follow through; we know that only about 1 in 10 households actually buy life insurance in any given year. Why don t they take action and purchase the life insurance coverage they believe they need? The top reason U.S. households delay purchasing life insurance is that it has low priority compared with other financial goals. More than half of households feel that life insurance will be too expensive for them; they may simply need to be educated about the low cost of term life insurance. Forty-four percent of U.S. households feel they already have enough insurance, and 42 percent prefer to put money in other financial products. Households considering buying life insurance need help deciding what to purchase. More than half don t know what type to buy or cannot decide how much to buy. For those who think they might buy life insurance in the near future, procrastination is a problem. Fifty-four percent of them just haven t gotten around to it, 39 percent don t feel they ve received any information relating to their life insurance needs, and 35 percent seem to be waiting for someone to approach them. This indicates that even those who think they might buy life insurance in the next year will not seek it out on their own. Table 19 Reasons Households Have Not Bought More Life Insurance Need More Households That Likely to Buy* Insured Households All Households Money Issues Other financial priorities 79% 77% 61% 64% Can t afford Prefer to put my money in other financial products Decision-Making Challenges Difficult to know what type to buy 47% 56% 35% 36% Difficult to decide how much to buy Worry about making the wrong decision Procrastination To avoid high-pressure sales tactics 44% 53% 38% 38% Just haven t gotten around to it Have not received info that relates to my needs No one has approached me Unpleasant to think about dying Have Enough Insurance to Meet My Needs NA NA 54% 44% Do Not Need Life Insurance NA NA 22% 27% *Includes Very and Fairly likely to buy. NA Not applicable 33

36 MANY INSURED HOUSEHOLDS WANT TO REVIEW LIFE INSURANCE FREQUENTLY Forty-four percent of insured households want someone to contact them to review their life insurance coverage and policies at least every five years. And almost one third want a review every couple of years. Half of insured households would rather initiate contact themselves when they are ready to review their coverage. Insured households under age 45, parents, and middle-market households are more likely to want someone to contact them and offer to review their life insurance coverage at least every five years. Older households, low-income and high-income households would rather initiate contact themselves when they are ready to review their life insurance coverage or policies. Table 20 How Often Insureds Prefer to Review Life Insurance Coverage Once a Year 1 to 2 Years 3 to 5 Years 6 Years or More At My Request Age of Household Head Under age 35 16% 19% 19% 6% 40% or older Household Income Under $35, $35,000 $49, $50,000 $99, $100,000 $124, $125,000 and over Marital Status Married with children Married no children Not married Households Saying They Need More Insured households

37 INTEREST IN FINANCIAL PRODUCTS AND SERVICES DECLINES Only 44 percent of all U.S. households and 54 percent of married households with children under 18 want to speak with financial professionals about financial services or products. Families may be delaying making any financial decisions during these tough economic times. Compared with 2004, households are considerably less willing to speak with professionals about retirement needs or lifetime income plans, life insurance, disability coverage, or education savings. Overall, there is no one financial product or service that U.S. households most want to speak with financial professionals about. A greater proportion of married households with children than other households want help with various financial activities. At least 1 in 4 married households would like to speak with financial professionals about retirement needs, lifetime income plans, life insurance, savings plans for children s education, and disability income plans. Financial advisors are consumers top choice for most financial activities. Insurance agents and brokers are among the top choices for insurance needs such as life insurance, disability income insurance, critical illness insurance, long-term care insurance, and auto or homeowners insurance. Table 21 Financial Activities for Which Households Want Help From Professionals Who Should Provide Help With Financial Activity All Households Married With Kids Insurance Agent/Broker Financial Advisor Bank Professional Other Professional Review retirement needs 37% 19% 47% 25% 16% 76% 24% 10% Plan to provide lifetime income after I retire Plan if I or spouse becomes disabled Plan to provide financial help if I or spouse die Savings strategy Long-term nursing care plan for me or my spouse Investing strategy Debt reduction Critical illness insurance Estate planning Plan to save money for children s education Auto or homeowners insurance Not asked in

38 TRUST INFLUENCES THE BUYING DECISION Trust is the key element consumers require to buy life insurance. Half of U.S. households say they are more likely to buy if the sales representative is someone they trust. On the other hand, the action most likely to derail a sale is pushing to close the sale at the first meeting: Fifty-eight percent of households say they are unlikely to buy if the sales representative wants them to buy at the first meeting. Consumers expect sales representatives to establish relationships before trying to sell them policies. The actions that most positively influence consumers decisions to buy life insurance are working with trustworthy sales representatives: dealing with sales representatives who are recommended by people they trust, buying at their workplaces, obtaining reviews of their households life insurance needs, seeing life insurance presented as part of a total financial plan, and meeting face-to-face. A significant proportion of consumers say they are less likely to buy if the sales representative pushes to close the sale at the first meeting, the whole sales process is conducted on the Internet, or the offer comes in the mail even if it is from someone with whom they have done business before. Figure 6 Influences on the Life Insurance Buying Decision Trust sales representative 50% 44% 6% Sales rep recommended to me 40% 54% 6% Can buy at place of work 35% 57% 8% Sales rep reviews/analyzes needs 33% 57% 10% Presented as part of financial plan 32% 59% 9% Meet face-to-face 30% 58% 12% Whole process done on Internet 19% 60% 21% Mail offer 17% 63% 20% Rep wants me to buy at first meeting 3% 39% 58% More likely No influence Less likely 36

39 METHODOLOGY LIMRA s U.S. Life Ownership study serves as a resource for monitoring long-term patterns in life insurance ownership. The 2010 survey results are based on 3,766 households with 9,390 household members. We asked the person most involved in making decisions about finances, investments, and life insurance to complete the questionnaire. Data Collection Fieldwork was conducted in the second quarter of Participants were selected from the Harris Online Panel and received invitations and several reminders that contained hyperlinks to the survey Web address. Respondents received standard panel incentives for participation as well as entry in a drawing for a prize of $10,000. Completion of the survey took 25 minutes on average. Weighting The 2010 U.S. Ownership Study was weighted to bring the sample as close as possible to U.S. Census Bureau population figures to ensure that the sample represented the U.S. population age 18 and older. Demographic factors used in weighting included the respondent s age, household income, gender, education, investable assets, race, and region. A propensity weight was applied to correct for attitudinal and behavioral biases associated with being online versus offline. Dollar Figures All dollar figures in this report are in 2010 dollars unless otherwise noted. An inflation factor of 1.16 (based on the consumer price index) was applied to 2004 data, and an inflation factor of 1.34 was applied to 1998 data. Very high face amounts and very low face amounts reported by consumers for individual life insurance and group life insurance that the household owned were adjusted to eliminate the effect of extreme outliers. The lowest 1 percent and the highest 1 percent of reported face amounts were eliminated from the mean calculations of average amounts owned for individual life, group life, and total life insurance. Sample Respondent quotas were established for 30 different age-income segments to obtain a large enough sample to analyze life insurance ownership for each group. Table A-1 summarizes the target quota, number of surveys completed, and final number of usable surveys for each age-income segment. Table A-2 shows the sample size for specific demographic groups. 37

40 Table A-1 Survey Quota Groups and Numbers of Completed Questionnaires Target Quota Original Number Completed Usable Number Completed Age and HH income under $35, Age and HH income $35,000 $49, Age and HH income $50,000 $74, Age and HH income $75,000 $99, Age and HH income $100,000 and over Age and HH income under $35, Age and HH income $35,000 $49, Age and HH income $50,000 $74, Age and HH income $75,000 $99, Age and HH income $100,000 and over Age and HH income under $35, Age and HH income $35,000 $49, Age and HH income $50,000 $74, Age and HH income $75,000 $99, Age and HH income $100,000 and over Age and HH income under $35, Age and HH income $35,000 $49, Age and HH income $50,000 $74, Age and HH income $75,000 $99, Age and HH income $100,000 and over Age and HH income under $35, Age and HH income $35,000 $49, Age and HH income $50,000 $74, Age and HH income $75,000 $99, Age and HH income $100,000 and over Age 65 and older and HH income under $35, Age 65 and older and HH income $35,000 $49, Age 65 and older and HH income $50,000 $74, Age 65 and older and HH income $75,000 $99, Age 65 and older and HH income $100,000 and over TOTAL 4,000 4,089 3,766 38

41 Table A-2 Demographic Distribution of 2010 and 2004 Survey Samples 2010 Unweighted Numbers 2004 Unweighted Numbers All Households 3,766 2,143 Household Income Under $35, $35,000 $49, $50,000 $99,999 1, $100,000 $124, $125,000 and over Respondent Age * and older Investable Assets Under $25,000 1, $25,000 $99, $100,000 $499, $500,000 and over Family Status Married with children Married without children 1, Not married 1, Respondent Gender Male 1,842 1,095 Female 1,924 1,034 Region Northeast Midwest 1, South 1, West *The youngest two respondent age groups were combined as in

42 Terminology Individual life includes policies purchased through agents and companies, fraternal organizations, direct response, banks, and associations. It also includes savings bank life insurance (SBLI) sold in Connecticut, Massachusetts, and New York. Face-to-face distribution is limited to individual policies purchased through face-to-face meetings with insurance agents, brokers, and other financial professionals. This category was referred to as agent-sold life in prior studies, since nonagent sales represented a very small percentage of this category. The name has been changed to reflect the growing presence of other professionals. Group life includes life insurance obtained through employers and labor unions. Any coverage includes individual life insurance, group life insurance, and/or veterans or servicemen s life (SGLI and/or VGLI). Children are any dependent individuals under age 18. Household Income Table A-3 illustrates the structure of the five household income classes used in trending data between 2004 and Data on household income were collected through categorical income ranges in 2004 and It is not possible to match these income categories exactly. However, to provide a basis for comparing data across the two studies, we grouped households to create a similar distribution of households across income categories. The five income categories shown in Table A-3 represent the closest match of income distributions that can be obtained from the two studies. Table A-3 Household Income Distributions in 2004 and Original Income Classes Inflated to 2010 Dollars Percent of Households Current Income Classes Percent of Households Under $35,000 Under $40,600 30% Under $35,000 25% $35,000 $49,999 $40,600 $57, $35,000 $49, $50,000 $74,999 $58,000 $86, $50,000 $99, $75,000 $99,999 $87,000 $115, $100,000 $124, $100,000 or more $116,000 or more 12 $125,000 or more % 100% 40

43 RELATED LINKS The following links are valid as of 10/8/10. LIMRA Life Insurance in a Tough Economy (2010) This report explores consumers current life insurance situations, why they resist opportunities to buy, and what can be done to better engage consumers regarding their life insurance needs. The Facts of Life and Annuities September Update (2010) This fact book on life insurance and annuities can be used to help educate people about the value the industry brings to the U.S. economy and how our products and services can change lives. The Financial Protection of Generations X and Y (2010) This report looks at the financial goals of Gen X and Gen Y, along with their attitudes toward life insurance, life insurance companies, and financial professionals. Improving Sales Presentations: Using Choice Architecture to Influence Buying Decisions (2009) This study explores how choice architecture (behavioral economic principles) can be incorporated into sales presentations to help prospects make better financial decisions. It discusses how to present products and advice to potential buyers of insurance. U.S Individual Life Sales Trends (2010) This report shows industry estimates of individual life insurance sales in the United States. Overall results are displayed by annualized, planned recurring and single premium, face amount and policy sales. Premium market share is also displayed by product and distribution channel. 41

44 LL Global, Inc. HARTFORD ATLANTA MIAMI TORONTO LONDON KUALA LUMPUR SHANGHAI HO CHI MINH CITY SEOUL 2010, LL Global, Inc. SM This publication is a benefit of LIMRA membership. No part may be shared with other organizations or reproduced in any form without LL Global s written permission ( OA5)