Life insurance sales plummet despite the need for it

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Life insurance can be an excellent tool for securing the financial future of your loved ones. But a growing percentage of Americans have said “no thanks” to this type of coverage over recent decades.

The percentage of families with life insurance has plummeted from 85.4% in 1971 to just 59.4% in 2021, according to findings presented at the spring 2023 meeting of the National Association of Insurance Commissioners in Louisville, Ky.

The numbers are expected to be even worse when the 2022 totals are compiled, according to Andrew Melnyk, chief economist and vice president of research for the American Council of Life Insurers and presenter of the findings at the NAIC meeting.

Why are life insurance sales falling?

There are various theories about why life insurance sales have fallen so dramatically in recent years.

Some experts say life insurance has become too expensive, particularly for lower-income people. Costs are especially high for people in poorer health, who typically pay more for life insurance coverage.

A few years ago, a Federal Reserve Bank of Chicago report offered other possible explanations for the decrease in life insurance sales. They include:

Increasing life expectancies have convinced more people that they do not need life insurance.
Changes in tax laws make purchasing life insurance a less attractive tax strategy.
More options for investing.
Declining interest rates make it less important to find ways to protect investment gains from taxation.

However, in the end, no one can say for sure why life insurance sales have declined so precipitously.

Sales falling, but interest rises

However, there is a ray of hope for insurers: Interest in life insurance is on the upswing.

In fact, a record proportion of consumers — 39% — say they plan to buy a life insurance policy in the next year, according to a recent survey from the nonprofit industry trade associations LIMRA and Life Happens.

LIMRA speculates that the sudden surge of curiosity about life insurance might be tied to the COVID-19 pandemic, which brought the fragility of life into sharp focus for millions of people.

There may be other reasons why life insurance is getting a second look now.

Amanda Kuhl, senior vice president and head of life products at New York Life, says that life insurance policies “can be considered an asset class of their own,” helping in tax diversification or offering policyholders the opportunity to leave a more considerable legacy.

“As awareness of the importance of life insurance grows, more people begin to understand the role life insurance can play in a broader financial strategy,” she says.

Is life insurance a good investment?

Everybody’s circumstances are different, and life insurance might not be the right choice for some people. But millions can benefit from this coverage.

“Life insurance can provide needed protection and peace of mind for many of life’s unknowns,” Kuhl says.

For example, life insurance can offer you the solace of knowing that if you die suddenly, your loved ones will have a source of income from the death benefit your policy pays out.

“If anyone depends on your income, you should consider purchasing life insurance,” Kuhl says.

In addition, if you purchase a whole life policy, you can build cash value that you can tap into during your lifetime.

Life insurance can also be used to reduce taxes, Kuhl says.

“For consumers who are maxing out traditional retirement vehicles, a permanent life insurance product with tax-advantaged cash-value growth can be an additional tool for saving money for retirement,” Kuhl says.

However, life insurance has a few drawbacks. For example, if you purchase a term life insurance policy but need permanent coverage, you will not receive a refund on past premium payments once your policy expires.

Also, critics have asserted that the cash value associated with whole life insurance offers relatively poor returns compared to other options. They suggest that some people are better off investing their money elsewhere.

You’ll want to work with a financial adviser, life insurance agent or another professional to determine the best type of policy for your specific needs.

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How to get the best life insurance policy

If you are considering life insurance, purchasing a policy when you are younger often makes sense.

“Policies are less expensive the younger and healthier you are,” Kuhl says.

Specific life events also can be good moments to buy life insurance. They include:

Getting married
Buying a home
Starting a family
Changing professions or securing a promotion

If you decide that life insurance makes sense for your situation, you must decide which type of policy suits you best — term life insurance or permanent life insurance.

“Consider what policy best meets your needs,” Kuhl says. She recommends asking yourself four questions:

How much protection do I need?
How long do I need that coverage?
What is my budget, and how much can I pay monthly?
What is my investment risk tolerance?

Once you have answered those questions, you can begin looking for a policy. Comparing quotes from various providers is probably the best way to find the right policy at the best price.

While the price of a policy likely will play a significant role in finding the right coverage, you should not focus on cost alone.

“Consider the insurer’s track record and financial strength, customer service reputation and the range of payment options available when evaluating carriers and policies,” Kuhl says.

Sources:

LIMRA. “New Study Shows Interest in Life Insurance at All-Time High in 2023.” Accessed May 2023.

Insurance NewsNet. “Life insurance industry sales focus change cited in falling policy counts.” Accessed May 2023.

Bloomberg. “The Decline of Life Insurance Is a Mystery.” Accessed May 2023.

Federal Reserve Bank of Chicago. “What Explains the Decline in Life Insurance Ownership?” Accessed May 2023.

Motley Fool. “Here’s Why You Should Avoid Whole Life Insurance Like the Plague” Accessed May 2023.

White Coat Investor. “Why Whole Life Insurance Is a Bad Investment — Debunking the Myths.” Accessed May 2023.

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Chris Kissell

Contributing Researcher

Chris Kissell is a Denver-based writer and editor with work featured on U.S. News & World Report, MSN Money, Fox Business, Forbes, Yahoo Finance, Money Talks News and more.