Life insurance coverage in the US has reached its lowest level in five decades with almost half of Americans with annual household incomes of between $50,000 and $250,000 having no cover, according to Genworth Financial.
Almost as disturbing, points out the life insurer, those with insurance have only enough to cover 3.6 years of income, potentially leaving their families significantly underinsured.
To address the problem, Genworth teamed up with Gregory Fairchild, associate professor at the University of Virginia, Darden School of Business in a research project dubbed LifeJacket, aimed at assisting financial advisers so they close the insurance coverage gap.
Results of the research project were released in September in a study entitled Genworth LifeJacket Study, 7 Key Insights to Help Close the Coverage Gap.
Senior vice-president of life and annuities at Genworth Anthony Vossenberg said: “The [life] industry has done an excellent job of offering products that meet the consumer needs.
“We now have the deep insight needed to bridge the coverage gap and bring consumers to the table, creating a more effective way of doing business.”
As a strong starting point in the drive to increase life coverage, the study reveals that 40% of consumers do not believe they have enough life insurance to meet their family’s long-term needs.
In addition, the study found that Americans have a desire to work closely with an agent or adviser to understand the role of life insurance in securing their families’ futures.
To build on this positive foundation, Genworth’s study emphasised that financial advisers must change the way they approach their clients if they are to break down the barriers that keep families from obtaining adequate coverage.
As a start, financial advisers must pay more attention to consumer desires. For example, the study found that more than 60% of consumers who currently own life insurance want to meet with their adviser at least once a year.
However, only 38% of this group indicated that annual meetings were occurring.
The study also found that meetings with clients need not be lengthy affairs.
“Clients want an annual life insurance review that is fast and efficient, and those who receive one report having a stronger relationship with, and more trust in, their adviser,” the study noted.
Specifically, 77% of respondents to the study indicated that they expect an annual review of an hour or less.
A lack of attention by advisers to clients’ changing needs is also indicated by the study which found that of consumers who own life insurance, one-third purchased their policies more than 10 years ago.
“A simple conversation with a client can uncover unforeseen gaps in their coverage,” emphasised the study.
Supporting this, the study found that 77% of respondents felt that life insurance policies should be reviewed throughout their lifetime, or as their needs evolve. Only 23% felt that life insurance is a one-time transaction.
Also of note is that although life insurers are providing online tools to assist consumers in assessing their insurance needs, more effort is required to persuade them to start making effective use of these tools.
Specifically, 77% of consumers polled for the study said they had never used an online insurance needs calculator. However, when they were shown an online example of their functionality, 88% of respondents indicated that they would find them helpful during a life insurance transaction.
Vossenberg also pointed out that during the study Genworth had an opportunity to assess how insurance coverage has influenced financial conditions experienced by families following the death of a primary wage earner.
“We gained great insight from these discussions that we can draw into our practice,” Vossenberg said.
“Specifically, we learned the things beneficiaries wished they had known about prior to the death in the family.”
Among the findings was that 94% of beneficiaries indicated they needed additional life insurance coverage in order to maintain their standard of living.
In addition, 43% of respondents had used life insurance income to pay outstanding debts, even though only a third had intended to do so, while 48% indicated that insurance benefits are used to pay for basic living expenses, while only 32% had expected to use it for this purpose.