Life Insurance Policyholders Often Neglect Updating Coverage
Life insurance is a cornerstone of long-term financial planning, yet many policyholders are surprisingly uninformed about how it works. A recent survey reveals significant gaps in understanding and a concerning lack of updates to existing policies, even after major life changes.
According to industry data cited by The Zebra, approximately 60% of Americans have some form of life insurance. However, a substantial portion may be underinsured. Further, many overestimate the cost of term life policies, with over half believing the cost to be triple the actual price.
Confusion surrounding life insurance contributes to “significant knowledge gaps,” according to a survey of 1,009 Americans by Western & Southern Financial Group. This survey revealed concerning trends in policy management.
Key Findings of the Western & Southern Survey:
- Lack of Policy Updates: A mere 26% of life insurance policyholders regularly consult their insurer or financial advisor about their policy details. Meanwhile, 40% rarely or never review their policies.
- Failure to Adapt to Life Changes: Over 90% of policyholders did not update their life insurance after major life events, such as starting a business or taking on new debt. This oversight can have negative financial consequences.
- Policy Lapses: 29% of respondents lost their life insurance after changing jobs or retiring. In such instances, nearly a quarter (23%) had to dip into personal savings for coverage, while another 16% purchased temporary or short-term policies.
As New York Life noted in a blog, a range of life events can significantly impact your life insurance needs. Some events are smaller, such as a salary increase or relocating to an area with a higher cost of living. Others have a more profound impact on your life and financial planning, like becoming a parent or the loss of a loved one. It’s critical to review and update your policy to ensure that it continues to meet your needs.
Major Life Events Affecting Insurance Needs
Here are eight major life events that can significantly impact your life insurance needs, necessitating a review and potential adjustment of coverage:
- Getting married
- Buying a home
- Having children
- Paying for your kids’ college
- Starting a business
- Caring for aging parents
- Having grandchildren
- Retiring
