Reasons For Not Buying Life Insurance

A recent study from LifeHappens found that only 41% of people purchase individual life insurance, and an additional 19% of adults get life insurance through their work. On their own, these numbers do not provide  the entire picture. Do the 40% of people without life insurance need coverage for their families? Do the 60% of people who are paying for life insurance actually have a use for it?

ValuePenguin explored the top reasons people are, or are not, purchasing life insurance to understand whether this financial planning decision is being made rationally or mostly emotionally. 

Burial & final expenses - For people that already have life insurance, the most commonly cited reason for purchasing it was in order to cover final expenses. In fact, this was a “major” determining factor for 53% of policyholders. This is a fairly concerning statistic, since the average cost for a funeral is about $10,000, which is alsothe amount of money that many financial experts recommend you have in an emergency fund for these sorts of situations. You’d also expect that, given that most people have decades to save, putting aside $10,000 before your deathwould be preferable to paying the high costs of final-expense insurance.

Final-expense insurance policies are fairly low in cost, but this is because the amount of coverage available is often limited to less than $25,000.A moderately healthy adult can typically save several hundred to several thousand dollars by instead purchasing term coverage and putting together a final-expense savings account.

Cost perception - Among consumers who don’t purchase coverage, cost is cited as the top reason for passing on a policy; 64% of those surveyed said they were not purchasing life insurance at least in part due to the rates being too high. While the cost of a financial product is certainly a worthy consideration, the cases are very few in which the price for life insurance alone should determine whether or not you buy coverage.

For the majority of people, term life insurance is the more appropriate choice than permanent life insurance, asa term policy can offer significant coverage for a period of decades. In addition,  a term policy will often be offered at around a tenth of the price of a permanent life insurance policy with comparable coverage. You can purchase up to several hundred thousand dollars worth of term insurance from dozens of insurers so long as you’re reasonably healthy and below 70. Even if you have pre-existing medical conditions, unless they’re quite severe, a good number of insurers will be able to offer a reasonable price and a face value up to $500,000.

Cost only becomes a significant limitation when you’ve over 70, are bedridden or unable to handle normal activities without assistance, or are particularly ill. However, costs can seem high if you are quite specific about the type of coverage you want. For example, if you don’t want to be asked any medical questions in the underwriting process, or would only purchase permanent life insurance, costs for coverage can seem quite steep. The choice between your particular preferences for life insurance and the risks of not being covered is, therefore, a personal one. This is why cost should be a factor, but typically not on its own.

Spending prioritization - After the cost of life insurance, the most cited reason for not purchasing coverage was other financial priorities. It’s unlikely that any financial advisor would argue with the decision to put off purchasing life insurance in order to pay basic cost-of-living expenses (a reason cited by 62%), not all the reasons to delay coverage acquisition are as stable.

For instance, 26% of those delaying the purchase of life insurance were doing so as they were saving for a new car or boat, or to purchase a second home. And 15% cited vacation as a financial priority that was taking precedent. Prioritization of finances must certainly be reviewed on an individual basis but, considering how inexpensive it often is to get coverage that can help to protect your family in the face of a tragedy, it may be worth the tradeoff to delay your next trip slightly.

This content originated on ValuePenguin.