Life Insurance: Myths and Reality While some misconceptions remain prevalent, consumers are beginning to understand the complete value of life insurance. A report from the 2012 myworth Survey sponsored by The Penn Mutual Life Insurance Company
Table of Contents Introduction 2 Myth 1: Life insurance is death insurance only 3 Myth 2: Life insurance is only needed after you have started a family 4 Myth 3: Husbands should have a greater amount of life insurance 5 Myth 4: Once you buy life insurance, you are all set 6 About the myworth Survey Sponsored by The Penn Mutual Life Insurance Company 7 1
Introduction The notion of life insurance is simple purchase a policy to protect your loved ones financial well-being should something happen to you. While the concept is easy to follow, understanding how it actually works, what type to purchase, the amount needed, and even how to leverage benefits throughout life can be more difficult. Consumers have been purchasing life insurance for hundreds of years. However, as time goes on, a broader range of life insurance products have emerged, offering a wide assortment of benefits that makes it challenging to understand all that life insurance can offer. As a result, many myths have emerged over the years that are based largely on the misconceptions of life insurance, such as: Life insurance is death insurance only Life insurance is only needed after you have started a family Husbands should have a greater amount of life insurance Once you buy life insurance, you are all set This report will explore each myth and describe consumers attitudes towards life insurance and whether or not these common thoughts continue to be supported. The data shown is from the myworth Survey sponsored by The Penn Mutual Life Insurance Company. Life insurance policies contain exclusions, limitations, reductions of benefits and terms for keeping them in force. Accessing cash values may result in surrender fees and charges, may require additional premium payments to maintain coverage, and will reduce the death benefit and policy values. 2
Myth 1: Life insurance is death insurance only. Reality: Despite messaging regarding the living benefits of life insurance, consumers continue to regard life insurance as death insurance only. However, we may see this perception begin to change. Naturally, the primary purpose of life insurance is to provide protection in the case of death. However, consumers generally don t realize that many life insurance policies also provide living benefits that can be accessed throughout life. Figure 1 demonstrates the vast majority of respondents (85%) would not consider life insurance as anything but a death benefit, and many (41%) don t even like the idea of using life insurance while alive. Figure 1: Agreement Statements of Those with Life Insurance Life Insurance is to provide money to those I leave behind and I would not think of it for any other purpose. Although its primary purpose is to provide money to those I leave behind, I like the idea of being able to use it while I m alive. 85% 13% 55% 41% 0% 20% 40% 60% 80% 100% Agree Disagree Don t Know Many consumers are not even aware of how they could use life insurance throughout their life. Figure 2 shows approximately half of survey respondents are unfamiliar with the living benefits associated with certain types of life insurance. This notion appears greatest among younger respondents. Figure 2: Familiarity with Key Benefits While Alive % Not familiar/never heard of this Total (2,465) <40 yrs (840) 40-59 yrs (844) 60+ yrs (781) A source of emergency funds 48% 57% 49% 38% Providing a retirement income stream 52% 60% 51% 44% Accessing money to pay for college 54% 61% 53% 47% While many consumers report they do not take advantage of the living benefits of their life insurance policy today, they are open to learning about how to leverage these benefits. Specifically, 60% would like to learn how life insurance can provide a source of money when alive, 59% are interested in how it can provide an income stream during retirement and 41% would like to understand how it can provide a source of college funding. Conclusion: While the primary role of life insurance will always be viewed as a means to protect against death, awareness of the living benefits may be growing as financial professionals and insurance carriers focus on the interests and needs of clients and their desire to learn more about the complete value of life insurance. 3
Myth 2: Life insurance is only needed after you have started a family. Reality: Purchasing life insurance based on life events such as getting married or having a child remains prevalent, but consumers are beginning to think differently. Traditionally, consumers tend to think about their protection needs when a life event happens. Among survey respondents, 33% believe marriage is the trigger for purchasing life insurance, while 25% believe it s when they have a child and only 4% believe it s necessary when you buy a house. While these life events are important, it s equally important for consumers to understand that life insurance protection should be thought about in the absence of these events as well. Figure 3: If you were advising someone about life insurance, when would you encourage them to buy life insurance? When you buy a house 4% When you have children 25% When planning to retire 2% Other 5% Never 4% When you get married 33% Immediately 27% This myth may be prevalent because 42% of those who have never been married and 39% of those without children believe you don t need life insurance if you re single, as demonstrated in Figure 5. Figure 4. Agreement Statements about Life Insurance % Agree strongly/somewhat Total (2,465) <40 yrs (840) It is better to buy life insurance when you re younger If you re single, you don t need life insurance Never Married (302) Non-Parent (674) 48% 57% 49% 38% 52% 60% 51% 44% Life insurance is a financial asset 54% 61% 53% 47% Further, 36% of those who have never been married (vs. 61% that are married) and 46% of those who don t have children (vs. 62% that do have children) are less likely than their peers to own individual life insurance. Conclusion: Since life insurance is viewed as protecting against death only, most consumers do not believe they need life insurance if they are not married or do not have children. However, they do believe that it s better to buy life insurance when younger and that it is an important thing to have, regardless of one s marital or parental status. Those less likely to believe this are, in fact, younger, have never been married and/or have never been parents. 4
Myth 3: Husbands should have a greater amount of life insurance. Reality: Despite the number of women in the workforce, and the increase in the number of wives out-earning their husbands, this myth remains. The majority of respondents, 58% of men and 69% of women, do not believe it is more important for a husband to have more life insurance but it s interesting to note that actual behavior lags attitude. Figure 5: It is more important for a husband (than a wife) to have life insurance Figure 6: When both a husband and wife have life insurance, the husband is insured for the greater amount 100% Agree Disagree Husband Wife Same 100% 100% 24% 19% 80% 80% 80% 60% 58% 69% 60% 12% 16% 60% 40% 40% 40% 64% 62% 20% 37% 27% 37% 27% 20% 20% 0% Men (1217) Women (1248) 0% 0% According to the Husband (611) According to the Wife (653) Interestingly, wives are significantly less likely than husbands to have individual life insurance (56% vs. 68%) and report substantially lower levels of individual coverage than do husbands participating in the myworth survey (median of 92.5K vs. 143.5K). This may be a function of women undervaluing their contribution to the household. When asked to place a price tag on the value of the services they provide, half (52%) underestimate their value by at least $5,000, compared to only 34% of men who do so. In fact, nearly two-thirds (64%) of women who are homemakers or stay-at-home parents underestimate their worth by $5,000 or more. Conclusion: Although people do not believe a husband should be insured for a greater amount, behavior proves this remains common practice. 5
Myth 4: Once you buy life insurance, you are all set. Reality: People know this isn t true, but their actions would have you think otherwise. Only 4% of survey respondents who have individual life insurance believe they don t need to review their life insurance once they buy it. One-third (32%) believe they should review their life insurance at least once a year. In reality, though, only 29% actually review their life insurance at least once a year, while 15% have never reviewed their life insurance. In total, one-third (32%) of respondents owning individual life insurance have not reviewed their policy in the past five years. Figure 7: Life Insurance Review Frequency 100% 80% 60% 40% 12% 6% 4% 15% 9% 21% 23% 17% 15% 19% Don t know/no answer Never Less often than once every 5 years Once every 4-5 years Once every 2-3 years 20% 32% 29% Once a year or more 0% Frequency SHOULD review life insurance Frequency ACTUALLY review life insurance The majority of respondents hear from their financial professional at least once a year (69%). However, since only 29% review their life insurance annually, it provides an opportunity for financial professionals and clients to make it a point to schedule annual reviews. Conclusion: Many owners of individual life insurance believe they should review their policy more often than they do. Creating trusting relationships between clients and financial professionals can help facilitate annual reviews to ensure proper coverage throughout all life stages. 6
About the myworth Survey Sponsored by The Penn Mutual Life Insurance Co. The myworth survey was administered via the Internet and produced 2,465 respondents of whom: 1,217 are male and 1,248 are female Survey participants were required to have: A household income of $50,000 per year or more ($25,000 for respondents 25-29) An age of 25 years or over It is important to note that, according to the US Census, the median household income in 2010 was $49,445. By comparison, median income for households included in the survey is $95,850. Therefore, when we discuss consumers in this report, we are talking about relatively more affluent consumers than the general adult US population. About The Penn Mutual Life Insurance Company Since 1847, Penn Mutual has been driven by our noble purpose to create a world of possibilities. At the heart of this purpose is the belief that life insurance is the most protective, responsible and rewarding action a person can take, and is first and central to a sound financial plan. The company is committed to helping families unlock life s possibilities through life insurance and annuity solutions. This is accomplished through a national network of financial professionals, who help clients make great things possible. Penn Mutual supports its field representatives with brokerage services through Hornor, Townsend & Kent, Inc., Registered Investment Advisor and wholly owned subsidiary. Member FINRA/SIPC. Visit Penn Mutual on the Internet at www.pennmutual.com. 2012 The Penn Mutual Life Insurance Company, Philadelphia, PA 19172 www.pennmutual.com T3370 11/12 I A2JC-1105-01E2 7