For many families, lack of coverage isn't necessarily a money issue. It comes down to information - or, more precisely, a dearth of it. There are fewer agents selling life insurance than there were a generation ago, and they have many more financial products to market, from retirement savings vehicles to mutual funds. So as the pool of advisers shrinks, the time these financial professionals spend talking about life insurance matters has gotten squeezed, too. This has created a knowledge gap for potential policyholders.
Imagine for a moment you were shopping for a car but thought the cost was several times the real sticker price. You'd probably look for the smallest, most entry-level vehicle you could find, if you weren't dissuaded from buying altogether. That's exactly what occurs with life insurance - 55 percent of people surveyed in 2010 said they didn't think they could afford coverage, yet they were overestimating policy costs by a multiple of three or four.
Another hurdle is knowing how much coverage is enough, and most people don't have a good handle on their needs. Using the car analogy again, you don't buy a sub-compact car if you're planning on doing a lot of off-roading. Similarly, a young family with many children will have different insurance needs than an empty-nester couple nearing retirement.
There are rough rules-of-thumb for estimating coverage, but it's better to keep things simple. What debts would your loved ones face if you died tomorrow? And what income would your family need to get by, over what period of time?
Remember, insurance needs are not necessarily constant. Life insurance protection may not be required after retirement if a person has saved and invested well. Until then, however, some life insurance coverage is a lot better than none.
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