Life insurance can seem tricky at times, with various policy options and misconceptions floating around. At Bankrate, we aim to make this complex topic more down-to-earth and easier to grasp, hopefully boosting your confidence as you hunt for the best coverage to fit your needs. We’ll tackle some common life insurance myths and provide facts and stats that could help clear up any uncertainties. Let Bankrate walk you through the practical sides of life insurance to help secure financial protection for you and your loved ones.
Life insurance facts and statistics
Life insurance remains an important aspect of financial planning, but understanding consumer behavior and market trends is vital for those considering or currently holding a policy. Each year, LIMRA and Life Happens collaborate on the Insurance Barometer Study to explore the attitudes and behaviors of American adults regarding life insurance and other financial products. This comprehensive study, which surveyed adult financial decision-makers in early January 2024, aims to uncover barriers consumers face when purchasing life insurance, ways life insurers can better educate and serve potential customers and demographic differences within the life insurance marketplace.
Here are some key life insurance facts and stats from the study:
- Perceived insufficient coverage: 22 percent of life insurance owners believe they do not have adequate coverage.
- Market stability: The proportion of respondents who feel they need life insurance has remained stable since 2022, with 30 percent of non-owners expressing a need.
- Income and insurance needs: Among those earning $50,000 to $149,999 annually, 39 percent report a need for more life insurance, highlighting a significant interest from middle-income consumers.
- Gender gap: Women are less likely to have life insurance than men, with a consistent 11-point gap over the past 14 years of the study.
- Generational trends: Baby Boomers have the highest rate of life insurance ownership. Gen Z, now aging into the study’s demographic, shows growing interest despite lower ownership rates, with half indicating they need more coverage.
- Diverse needs: Black and Hispanic Americans report a higher need for life insurance protection compared to other groups.
- Financial concerns: Millennials currently express the highest level of concern over financial matters, a notable shift from Gen X in previous years.
- Cost misconceptions: Approximately 72 percent of all participants overestimated the cost of a basic term life insurance policy, a common misconception year after year.
- Knowledge gaps: Over a quarter of younger generations cite a lack of knowledge about life insurance products as a barrier to ownership.
- Community trust: One in five individuals identifying as LGBTQ+ prioritize working with insurance professionals who share their sexual orientation or are known allies.
These statistics reveal a stable yet evolving landscape in life insurance, characterized by persistent misconceptions about cost and coverage needs across diverse demographic groups. As the life insurance industry continues to adapt to changing demographics and economic conditions, understanding these trends becomes increasingly important for anyone involved in financial planning.
How many people have life insurance
Building on the insights provided by the 2024 Insurance Barometer Study, approximately 51 percent of Americans report owning at least one life insurance policy, indicating stable coverage levels over recent years. The study reveals that 42 percent of American adults either need to obtain life insurance or increase their existing coverage. This persistent need-gap includes about 102 million adults, blending those who are uninsured and those who are underinsured.
Despite the awareness of life insurance’s importance, barriers remain. About 30 percent of those without coverage recognize the need but have not purchased insurance, mainly due to perceived high costs, other financial priorities or uncertainty about the necessary coverage amount. Additionally, 10 percent of policyholders feel they need more coverage than they currently have, suggesting a substantial opportunity for the industry to better serve existing customers.
Overall, the gap between those who have life insurance and those who still need it is significant, emphasizing the ongoing challenge for the industry to address misconceptions about cost and educate consumers on the value and potential affordability of life insurance.
Life insurance claims statistics
In 2022, insurance benefits and claims totaled $797.7 billion, according to the Insurance Information Institute (Triple-I). This number has increased when comparing 2021’s benefits and claims, which totaled $790.9 billion.
This amount includes death benefits, annuity benefits, disability benefits and other payouts. The largest payout in 2022 was $348.1 billion for surrender benefits and withdrawals from life insurance contracts made to policyholders who terminated their policies early or withdrew cash from their policies.
Life insurance statistics by age
One of the most significant determining factors in life insurance costs is age. The premium amount increases on average 8-10 percent for every year of age. Age can also influence whether a person qualifies for life insurance coverage at all. Depending on the type of policy, the maximum age for approval ranges from 70-85 years old. But there are also some policies, such as guaranteed issue whole life insurance, that have a minimum age requirement — typically 50 years old).
Other interesting life insurance statistics around age include:
- According to the 2024 Insurance Barometer Study, the percentage of life insurance ownership tends to increase with age.
- Gen Z (ages 12-27) claim a 36 percent ownership of life insurance.
- 50 percent of Millennials (ages 28-43) own life insurance.
- Gen X (ages 44-59) and Baby Boomer (ages 60-78) claim the highest percentage of ownership at 55 percent and 57 percent, respectfully.
- Millennial and Gen X generations are significantly more likely to own term life insurance when compared to younger and older generations.
- 72 percent of Gen Z Americans are likely to own permanent coverage, the most likely group of the generations.
- Gen Z represents the highest number of individuals with a need for more coverage, at 48 percent. Comparatively, Baby Boomers show a 30 percent need gap, the smallest gap of the different generations.
- The average life expectancy in the U.S. in 2022 was 77.5 years, up 1.1 years from 2021.
Life insurance industry statistics
Recent years have underscored the importance of financial preparedness for families across the globe, with events like the COVID-19 pandemic emphasizing the need for protection against unforeseen circ*mstances. This heightened awareness has sparked a significant increase in the demand for life insurance, as many seek to ensure their loved ones are safeguarded financially. The industry’s response to this shift has been characterized by adaptation and growth, meeting the evolving needs of consumers with enhanced offerings and services.
Here’s how the landscape has evolved and what the latest data from 2023 reveals about the state of the life insurance industry, according to LIMRA’s findings.
- Overall market growth: The total U.S. life insurance new annualized premium increased slightly by 1 percent year-over-year to $15.6 billion in 2023, marking the third consecutive year of record sales.
- Policy sales increase: The number of policies sold across the industry grew by 4 percent, with significant contributions from strong term life insurance sales.
- Whole life insurance: In 2023, whole life insurance new premiums were $6.1 billion, showing a modest 1 percent increase from the previous year. The policy count for whole life insurance also rose by 2 percent.
- Term life insurance: Term life insurance saw a notable increase, with premiums reaching nearly $3 billion, up 5 percent from 2022. The policy count for term life grew by 4 percent.
- Indexed universal life: Although indexed universal life (IUL) new premium fell by 5 percent in 2023 to $3.7 billion, the number of policies sold in this category rose significantly by 20 percent.
- Variable universal life: Premiums for variable universal life (VUL) rose by 8 percent to $1.9 billion, although policy sales experienced a slight decrease of 2 percent.
- Fixed universal life: Despite a yearly decrease, fixed universal life (fixed UL) new premiums saw a quarterly rise, increasing by 9 percent in the fourth quarter of 2023 to $267 million.
- Market share: At 12.1 percent, MetLife has the largest market share of the life insurance industry for direct premiums written, followed by Equitable Holdings (8.2 percent) and New York Life (5.2 percent).
Life insurance myths and facts
It’s possible that the average person has heard more life insurance myths than accuracies. Life insurance is just as subject to myth and falsehood as any other industry or knowledge base. Thankfully, unlike more esoteric matters, insurance policies and facts are backed by numbers and contracts. With that in mind, let’s review some of the more common myths about life insurance and learn what is really going on.
Myth 1: Life insurance is only for healthy, middle-aged adults.
Fact: While it’s generally easier and more cost-effective to purchase life insurance when you’re younger and healthier, people of various ages and health statuses can find policies suited to their needs. It’s important to note that options might be limited for very young children or older adults past a certain age, and premiums can be higher for those with health conditions or risk factors. However, many insurers offer a range of products that could potentially accommodate different life stages and health profiles. This is one reason why getting quotes from multiple companies can be beneficial.
Myth 2: I’m single or married with no children, so I don’t need life insurance.
Fact: While life insurance is often associated with providing for dependents, it can also be beneficial for individuals without children or a spouse. Benefits from a life insurance policy could be used to cover outstanding debts such as student loans, mortgages or car loans, and can help manage final expenses like burial costs. However, it’s also true that not everyone may need life insurance. If no one would be financially burdened by your absence and you have sufficient assets to cover your debts and final expenses, life insurance might not be necessary for you. Assessing your personal financial situation can help determine if life insurance is a prudent choice.
Myth 3: My student loans will be forgiven when I die, so I don’t need life insurance.
Fact: To keep it simple, it depends on the type of student loans you have. Federal student loan debt is forgiven upon death or total disability, and family members are not responsible for it. In this case, a life insurance payout could go to other things, such as living expenses or funeral costs.
Private student loan debt can be different and is not as cut and dry. You’ll need to ask your lender if they provide student loan death forgiveness, which will give you a better estimate of how much life insurance coverage you need.
Myth 4: My beneficiaries will have to pay income taxes on the proceeds of my life insurance policy.
Fact: Generally, the benefits received from a life insurance policy are not subject to income tax, as per the Internal Revenue Service (IRS) regulations. This means that the full amount of the death benefit is typically tax-free if it is paid out directly to the beneficiaries. However, if the policy is structured to earn interest, such as when the death benefit is invested or distributed in installments, any interest payments on top of the original policy amount may be taxable. It’s important for policyholders to consider how their life insurance is set up to understand the potential tax implications for their beneficiaries.
Myth 5: If I get a term life insurance policy, I can’t convert it to a permanent life insurance policy.
Fact: It is possible to convert some term life insurance policies, depending on the policy you purchased. However, you should find out the details from your agent before buying your policy.
Myth 6: Once my children are adults, I don’t need life insurance.
Fact: Having life insurance later in life has many advantages, like relieving the burden of funeral costs, paying state estate taxes, paying off your debt or simply giving your children a nest egg they can use to help support their own families.
Myth 7: I don’t need life insurance since my savings is at a comfortable amount.
Fact: The national median cost of a funeral with a viewing and burial is $7,848, according to the National Funeral Directors Association. Your savings were likely for retirement, so your loved ones may have to pay for your funeral costs if there is not enough left over. There may also be other costs with settling your affairs, such as estate taxes and court fees. Additionally, if you have any debts, your estate will use your savings to pay for those, which could reduce the amount left for your beneficiaries.
Myth 8: I cannot afford life insurance.
Fact: Consumers often overestimate the cost of a term life insurance policy. Many individuals are surprised to learn that a healthy 30-year-old could potentially get a $250,000 20-year level term policy for just $13 a month. With this policy, beneficiaries would receive the full $250,000 (as most are tax-free) if they were to pass away between 30 and 50.
Life insurance can be very affordable, depending on the type and amount of coverage you need.
Myth 9: I earn no income. I don’t need life insurance.
Fact: If you’re a stay-at-home parent, you don’t bring in an actual paycheck, but you likely provide services that could cost a lot of money to replace, such as child care, daily transportation, cooking and more. Life insurance benefits can help replace some of these costs.
Myth 10: Life insurance does not cover death by suicide.
Fact: Life insurance policies often do cover death by suicide, but there are specific conditions that typically apply. A common provision in many life insurance policies is the suicide clause. This clause usually states that if the insured dies by suicide within the first two years of the policy being active, the insurer may not pay out the death benefit. Instead, the premiums paid into the policy, plus interest, are often refunded. Once the suicide clause period has expired, generally after two years, and if the insured dies by suicide, the full death benefit is usually paid to the beneficiaries.
Myth 11: If you have health issues, you cannot get life insurance.
Fact: Having a pre-existing health condition doesn’t automatically disqualify you from obtaining life insurance. While it’s true that health can influence rates and coverage amounts, there are specific types of policies designed to accommodate those with health concerns.
Guaranteed issue life insurance, for example, does not require a medical exam or health questionnaires. Additionally, simplified issue life insurance might require only limited medical questions but no exam, offering a middle ground for those looking for quicker approval with some health considerations. Keep in mind, these policies generally have higher premiums and offer lower coverage amounts.
The bottom line
The life insurance industry has experienced some fluctuations in recent years, but current trends indicate a positive shift. While certain barriers to purchasing life insurance persist — such as misconceptions about cost and lack of awareness — increased access to information and more flexible policy options are starting to make a noticeable impact.
Despite challenges, there’s a promising increase in the number of life insurance policies sold. The total U.S. life insurance new annualized premium rose by 1 percent year-over-year to $15.6 billion, setting a record for the third consecutive year. This growth suggests a rising recognition of the value of life insurance, as well as an expanding market reach.
While the industry has faced periods of reduced coverage among Americans, the recent uptick in policy sales points to a revitalized interest in securing life insurance. This trend highlights a closing gap between the coverage people have and the amount they actually need, reflecting a shift toward greater financial security and preparedness among individuals and families.
