Life insurance is a cornerstone of long-term financial planning, yet many Americans lack a solid understanding of how it functions. A recent study reveals that a significant majority fail to update their policies after major life changes, potentially leaving themselves and their beneficiaries vulnerable.
According to industry data cited by The Zebra, approximately 60% of Americans have some form of life insurance. However, about one-third of these individuals believe they are underinsured, and more than half overestimate the actual cost of term life insurance. This confusion contributes to “significant knowledge gaps,” a recent survey of 1,009 Americans by Western & Southern Financial Group found.
Confusion and Gaps in Understanding
The Western & Southern survey revealed some concerning trends among policyholders. Roughly one-quarter (26%) are unsure if their life insurance would adequately cover their dependents’ education or debts. Furthermore, about one-fifth of policyholders and non-holders mistakenly conflate life insurance with health insurance or retirement policies.
Failure to Update Policies
One of the most alarming findings is that over 90% of policyholders do not update their life insurance policies after major life changes, such as starting a business or taking on new debt. Only 26% of policyholders regularly consult with their insurer or financial advisor about their policy details, and 40% rarely or never review their existing policies.
Experts highlight the potential negative financial consequences of not updating a policy when needed. For instance, 29% of survey respondents reported losing their life insurance after changing jobs or retiring, often because the policy was provided by their employer. In these situations, nearly one-quarter (23%) had to use personal savings to obtain life insurance, while 16% opted for temporary or short-term policies.
Why You Should Update Your Policy
New York Life’s blog emphasizes that a variety of life events can affect your life insurance needs. These events range from the relatively minor, like a salary increase or moving to a more expensive city, to major life shifts such as becoming a parent or losing a loved one. Updating your policy ensures that your coverage accurately reflects your current circumstances and financial obligations.
Major Life Events Affecting Insurance Needs
Here are eight major life events that can significantly impact your life insurance needs:
- Getting married
- Buying a home
- Having children
- Paying for your kids’ college
- Starting a business
- Caring for aging parents
- Having grandchildren
- Retiring
By staying informed and proactive about your life insurance, you can ensure that your financial plan remains robust and adaptable to life’s inevitable changes.
