As the coronavirus pandemic continues to affect everything from the largest economy to everyday life, it has exposed many areas where we are not prepared as we thought. For one, personal safety concerns sparked more interest in life insurance coverage. In a recent survey, ValuePenguin asked a national consumer sample of their thoughts on life insurance in the current situation.
While 25% of all respondents said they were more likely to get life insurance due to coronavirus, the response differed significantly by gender: 38% of men said it would be more likely buy life insurance now, compared to only 14% of women.
But although most people have active life insurance, only 3 out of 5 claimed to be "very familiar" with what they do. When asked if they knew what life insurance does, 33% of respondents said they knew "a little", while 9% said "not really".
Over 30% also said they did not know how much life insurance an individual needs. While the appropriate amount of coverage changes for each person based on their financial needs, most of the other respondents came with almost certainly too low estimates for a typical scenario.
The amount and type of life insurance that is best for you will depend on a number of personal factors. The first step is to determine the financial obligations you wish to cover. These can include tuition fees for your children or mortgage debt.
1 in 4 states that COVID-19 has increased its interest in life insurance, with men more likely to agree than women
When asked if the coronavirus situation had affected the likelihood of obtaining life insurance, 25% of consumers said it made them more likely to do so. About 69% of those who responded positively were men, who also represented 38% of all men who participated in the survey. In comparison, only 14% of all women said they were more likely to get coverage because of the pandemic.
These differences between men and women can be due to several factors. One possible reason is that while more and more women take on the role of primary householder, 59% of U.S. families still have a male family member who earns at least half of the family income. Based on this, the greatest interest in life insurance among men could be due to the fact that men probably have a greater share of family income to protect.
The differences of opinion on coronavirus and life insurance also extend to current policyholders and those without coverage. People who already had a life insurance policy were actually more likely to increase their insurance due to the pandemic (39%) than those who currently do not have coverage (20%).
Many people already have life insurance, but many aren't sure what they actually do
The survey results suggested that more people want life insurance because of COVID-19, but they also revealed that a sizable number don't have much information on how life insurance policies actually work. While 65% of all respondents said they already have life insurance, only 60% said they were "very familiar" with what life insurance does.
In the meantime, 33% of people professed to "know a little", while 9% said they didn't really know what life insurance does. This relative lack of knowledge can be problematic, given the variety of types of policies and benefits that make up the life insurance sector.
For example, the two most popular types of life insurance – duration and full life insurance – differ widely in price and benefits. Consumers need to be informed of these differences in order to find the coverage that best suits their individual needs.
Consumers are also puzzling over how much life insurance is needed
One of the most common questions about life insurance is how to calculate the right amount of coverage. When asked about the amount of life insurance generally sufficient, 30% of consumers had no idea, while only 10% cited the common rule of thumb that coverage should be 10 times the annual wage.
However, even that rule of thumb is often insufficient for an accurate estimate of a person's life insurance needs. Ultimately, the amount of coverage you should have should be sufficient to meet all your future financial obligations, minus the assets that would be liquidated at the time of the transition.
Consider the example of a homeowner married to young children. In the event of premature death, the surviving spouse would be left behind at least three ongoing financial obligations:
Monthly mortgage payments on the home
The cost of care and education for children, including tuition fees
The cost of maintaining the family standard of living with a single income
This list also excludes the one-time cost of a funeral, which typically costs around $ 10,000. While families are expected to cut back on expenses and adjust in such unfortunate cases, calculating your family's needs today and using that number to evaluate life insurance coverage can minimize the financial difficulties they would encounter without your support.
How to get started with life insurance
ValuePenguin is strongly interested in the way insurance works and how everyday consumers can use this information to get the most value from their coverage. That's why we did our best to clear up some of the common confusion points indicated by the survey.
How much does life insurance cost?
The average cost of life insurance depends on personal details, the type of policy and the insurance coverage. As a basic example, we found that a life insurance policy of $ 500,000 over a 20-year period would cost $ 30 a month on average for a 35-year-old non-smoker. Whole life insurance tends to be more expensive because it lasts a lifetime and can also build value over time.
What type of life insurance policy should I get?
In most cases, we find that term life insurance is the most convenient and convenient way to get effective coverage. Unlike full life insurance policies and other types of permanent life insurance, a life insurance policy will not last forever. But it will last long enough to cover costs that will eventually run out, such as a mortgage or a child's college tuition. Take a look at our comparison between life and full insurance for more details on which path could work best for you.
How can I calculate my life insurance needs?
Calculating the coverage required requires a unique result for each person. Some may wish life insurance to cover the costs of supporting their children up to adulthood, while others may also make sure that their spouse receives support until retirement.
At a minimum, you should start by adding up the lifetime cost of your current financial obligations, such as the mortgage and other jointly held debt payments. Then add the total cost of childcare until your children reach adulthood, along with the amount you plan to contribute to their college education.
Finally, it is possible to subtract the value of brokerage accounts, savings accounts and any existing life policies. These assets can be liquidated to cover your family's needs in addition to paying the new life insurance policy.
ValuePenguin commissioned Qualtrics to conduct an online survey of 1,136 Americans, with the proportional sample base to represent the overall population. The survey was launched between May 5 and May 8, 2020.