According to a new survey by Nationwide Financial, 98 percent of consumers who are married, partnered, or have dependents lack enough life insurance coverage to replace their income. The average consumer surveyed will earn approximately $1.5 million before retiring and currently holds about $300,000 in life insurance coverage, leaving a gap of about $1.2 million, Nationwide said.
“Too many Americans make the mistake of assuming that simply providing what may appear to be a large lump sum of money for their beneficiaries will be enough to protect them,” said Eric Henderson, senior vice president of life insurance and annuities for Nationwide Financial. “Instead, they should think about how much of their income the insurance money will replace. If it doesn't replace a high percentage of it, their family faces the risk of financial disruption or a reduced standard of living. It's simple math, and it doesn't add up for 49 out of 50 of those we surveyed.”
According to the survey, many consumers are willing to pay enough to close or reduce this income replacement gap; however the average life insurance policy currently replaces just 16 percent of the income the insured person will earn before retirement. Despite the fact that one-third (33 percent) said their most important consideration when purchasing life insurance was replacing their income, only two percent have actually done so completely.
Consumers have varying levels of confidence in their life insurance plan. Two-thirds (66 percent) of those who have life insurance are somewhat or very certain they have enough insurance to replace the income they or their spouse/partner would generate for the remainder of their working careers. Just over half (55 percent) think they could replace their spouse or partner's income, according to the survey.
“Many Americans have the false perception that they have an adequate life insurance plan in place,” Mr. Henderson said. “When they actually do the math, the true picture may become clearer, and hopefully motivate action.”
Despite this relative confidence, when asked how long their family could maintain its standard of living if a breadwinner died, six in 10 (62 percent) either don't know, or think they could do so for just four years or less. Just over one-third (36 percent) of respondents believe their family could adequately fund the retirement of the surviving spouse or partner.
Learn more: www.nationwide.com.
Victoria Spears
Victoria Prussen Spears is senior vice president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. A graduate of Sarah Lawrence College and Brooklyn Law School, Ms. Spears was an attorney at a leading New York City law firm before joining Meyerowitz Communications. She may be contacted at [email protected].