More Than Half of U.S. Households Lack Life Insurance: Survey

Lynette Khalfani-CoxMore than half of all American households don't have life insurance, potentially jeopardizing millions of families' financial security in the event of a loved one's death.

According to a survey from LIMRA, a financial services industry group, the percentage of U.S. households with life insurance coverage stands at the lowest level in 50 years. LIMRA reports that only 44% of U.S. households own an individual life insurance policy, which gives a cash payout to one's beneficiaries when a policy holder dies.Unfortunately, the recent economic recession has taken a toll on family budgets, and life insurance is one item that's been sacrificed as people struggle to make house payments, keep up with medical bills or pay credit cards and other debts.

The sad reality, though, is that by forgoing life insurance, many people are threatening their families' financial foundation.

"Many people think talking about life insurance is morbid," says Tamara Haskins, CEO of Haskins Wealth Management Group Inc. in Highland Park, N.J. "But we've all got to face reality."

"We're all going to die one day," Haskins notes, asking: "And when you do pass away, without life insurance who's going to pay for all those ongoing expenses, like food, clothing and shelter for the family – let alone longer-term costs, like your kids' college education?"

In addition to the fact that Americans are doing some serious belt-tightening, two other reasons explain the low number of insured families in the U.S. One is procrastination; the other is misinformation.

Many people put off buying life insurance, just like they delay creating a will, either because they're "too busy" or they simply don't want to confront the issue of dying.

Additionally, a lot of consumers mistakenly think that life insurance is solely intended for the main breadwinners in a family. But that's not always the case.

For example, even stay-at-home moms or stay-at-home dads should have life insurance, in order to replace the value of the services they bring to the family – services that would have to be paid for in the event of that parent's death.

Jeremy White, a CPA in Paducah, Ky., did some research to figure out the value of the services provided by a stay-at-home parent. His conclusion: The typical at-home mom delivers about $60,000 in annual services.

Meanwhile, financial planner Ric Edelman, who runs Edelman Financial Services in Fairfax, Va., believes an at-home mother's services are worth far more. According to Edelman, the 17 occupational duties a mother carries out – everything from child rearing to managing household finances to resolving family emotional problems – are more adequately valued at $508,700 in wages. (Edelman arrived at that figure by adding up the median annual salaries of the 17 occupations).

Experts do generally agree, however, that for most stay-at-home moms and dads, term life insurance is your best option. Compared with permanent life insurance, term life insurance is the most affordable, and the premiums are fixed.

Finally, single people and those without children sometimes think they don't need life insurance. That's a big mistake. Even if you don't provide support for children, aging parents or other family members, at the very least every adult should have a basic life insurance policy – known as "finance expense insurance" – that only covers their burial costs. With this coverage, family members and friends wouldn't have to bear the financial burden of a funeral, in addition to the emotional grief they'll undoubtedly be experiencing over the passing.

According to the 2010 funeral price survey by the National Funeral Directors Association, the average funeral cost – excluding cemetery expense – for an adult funeral is $7,775.00. This figure includes expenses for a traditional funeral. But when you add in cemetery costs, including a grave space, a grave marker and opening/closing the grave, that's typically another $1,500 to $2,500, bringing the total average funeral and burial cost to more like $9,000 to $10,000.

By the way, final expense insurance is also particularly helpful for older people, who may be worried about qualifying for life insurance. With a final expense policy, you can be perfectly healthy or have had serious medical problems, and still get the insurance. That's because this coverage requires little or no underwriting and you don't have to undergo the usual medical exams to secure the insurance.

If you're unsure about how much life insurance is appropriate, contact an insurance agent for help. You can also do some preliminary work by getting online and making some educated calculations about how much life insurance is appropriate for your particular situation.

The Life and Health Insurance Foundation for Education (LIFE), a non-profit organization, offers a good, easy-to-use Life Insurance Needs Calculator.

Also, for some cost-cutting ideas, check out this previous WalletPop article on the best way to save money on insurance.
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