Decline in ownership of life insurance

This week an insurance research firm reported that ownership in life insurance has reached a 50-year low, with nearly a third of U.S. households not having a form of this financial protection. As the benefits industry begins Life Insurance Awareness Month in September, Unum (NYSE: UNM) shares the concern that this decline exposes working Americans to financial uncertainty.

“Workplace offerings are also flexible in ways that should appeal to those feeling financial pressures”

"Life insurance is one of the building blocks of a solid financial plan," says Debbie Cecil, director of life products for Unum. "But it's not a one-size-fits-all benefit, so understanding the types of coverage that are available, and when they're important, can be daunting. When you add in the extra pressure we're feeling with the economy, many people are apparently just turning away from pursuing this coverage."

According to LIMRA, an insurance and financial services consulting and research firm, more than 40 percent of Americans say a major reason they have not bought more life insurance is because they have other financial priorities right now, such as paying off debt or saving for retirement. As a result, there are 11 million fewer American households covered by life insurance compared with six years ago.

Life insurance is frequently offered in employee benefit packages provided by employers. As economic pressures force employers to trim budgets and benefits, individuals can purchase additional life insurance coverage through other workplace offerings, or through individual insurance advisors. And these voluntary life plans are individually owned, so employees can keep their coverage should they change jobs.

"Workplace offerings are also flexible in ways that should appeal to those feeling financial pressures," Cecil says. "Some policies will guarantee an option to purchase a specific amount - also known as a guarantee issue - but allow you to purchase it in incremental amounts each year during re-enrollments, even without a health exam."

Like most voluntary workplace benefits, it is critical for employees to understand the different types of life insurance available, as well as how much coverage is needed and when. Here's a breakdown:

• Term life insurance

For young, single workers who don't have many financial obligations, term life coverage is usually adequate and affordable. The policy lasts for a defined period of time called the term, and is in force as long as premiums are paid. A term life policy does not accumulate cash value. Rates typically go up as the policyholder ages.

• Interest-sensitive whole life insurance

Interest-sensitive whole life offers premiums that will never change, and the policy is in force as long as premiums are paid. These policies also accumulate cash value. With term life as a foundation, interest-sensitive whole life is a nice complement, providing additional coverage as individuals get older and financial obligations grow. It may even include riders that could help cover the costs of long term care.

• Universal life

Universal life premiums are flexible and can be adjusted to fit an individual's changing financial lifestyle. So premium contributions can be adjusted to balance against costs for caring for aging parents, college or saving for retirement. These policies also accumulate cash value and may even include riders that could help cover the costs of long term care.

The decline in ownership of life insurance runs counter to what we think: According to a survey by the LIFE Foundation, a nonprofit agency, 93 percent of Americans think it's important for most people to have life insurance.

"The challenge lies in helping people move from understanding that this coverage is an important way to protect our families to helping them purchase the right coverage," says Cecil. "Making the options clear and affordable are major steps in closing that gap."

Life Insurance Awareness Month (LIAM) is an industry-wide effort coordinated each September by the nonprofit LIFE Foundation.

Source Unum