Life insurance key to reducing financial insecurity, poll finds

Latest industry study suggests households and consumers across age groups are unprepared for the worst

Life insurance key to reducing financial insecurity, poll finds

The latest results of an industry study on financial insecurity underscore the need for more consumers across demographics to get life insurance.

In its 2022 Insurance Barometer study, which generated over 8,000 responses from U.S. adults, LIMRA found alarming levels of financial insecurity prevailing across age groups.

While Baby Boomers showed the lowest levels of financial insecurity, it was still alarmingly high, with one third of respondents saying they were financially insecure. More than 40% of Millennials in the survey reported feeling financially insecure, and nearly 50% of Gen X respondents felt the same.

The study also found that women, more then men, express a greater concern about the financial and physical well-being of their households, but remain less likely to take action.

“These findings, really bolster the fact that too many families live with financial insecurity, which is a critical concern amid uncertainty and rising inflation today,” says Chantal Mackenzie, Regional Vice President, AB South, NWT, and YT at Canada Protection Plan. “Many people fail to appreciate the role that life insurance plays as a key element of feeling financially secure,” she says.

Life insurance provides families with an additional layer of financial protection, Mackenzie noted, as it provides them with non-taxable funds at time of death. It can also be used to cover obligations and personal loans. Having personal coverage, Mackenzie adds, is critical for Canadians who find themselves suddenly no longer covered by their employer.

The link between financial security and life insurance coverage is certainly borne out by the findings. Among respondents who owned life insurance across all demographics, nearly 70% reported feeling financially secure, compared to just 47% of non-owners.

Respondents were also asked to estimate how long it would be before they’d feel the financial impact of a primary wage earner passing away. Around 44% said the household would be under pressure within six months, while one in 10 respondents said they’d be feeling it in one week.

“That's a stark reality that's impacting all demographics across age, race and gender,” Mackenzie says. “While the number of people who recognize they need to get life insurance or need more coverage is at an all-time high, this survey revealed that most have not prepared for the loss of the primary wage earner.”

Gen Xers should be at or near the prime of their income-earning life, but that’s offset by the fact that they’re likely to have children near or in university. Households that have not prepared for the loss of their primary income earner may also be burdened by young adults who are not yet financially independent.

According to Mackenzie, people might not have life insurance because it opens the door to a lot of difficult conversations. It might also not seem like a priority for young, healthy individuals who are tight on funds, though they might end up paying more if they get coverage at a later age compared to if they’d gotten it right away.

“I think people should see life insurance as an investment in their future and family,” Mackenzie says. “We insure our cars, our houses, and our pets. So why not ourselves?”

And while an internal analysis of aggregate data performed by Canada Protection Plan shows a narrowing of the insurance gap between men and women, the findings from LIMRA suggest more work needs to be done on a broader scale. Compared to men, a higher percentage of women recognize they need to get or add to their life insurance coverage (44% of women vs. 38% of men), but fewer women say they have insurance (46% vs. 53% of men).

There are many factors to explain the inadequate levels of coverage for women, ranging from antiquated beliefs of men being the breadwinner who should be protected, to a lack of appreciation of women’s role managing the household, and even an unexamined belief that life insurance is too expensive.

“A huge factor is a lack of willingness to talk about it and a lack of understanding around individual insurance,” Mackenzie says. “At the end of the day, we all must recognize the inevitability of death and economic hardship that our families will face when we die. But owning life insurances is one of the easiest ways to reduce the burden of that economic risk.”

Mackenzie argues that closing the gap requires a much more concerted effort from financial advisors to educate and build trust among their clients. With so many people – including women, younger individuals, and new Canadians – unsure about how much coverage they actually need, it falls on advisors to do a thorough needs analysis, as well as create a space where people are encouraged to ask questions.

“I believe that the insurance industry has a responsibility to meaningfully educate in a way that it's accessible and digestible for the clients,” Mackenzie says. “We've made progress here, but there's still a long way to go.”