Americans may not fully understand the tax and living benefits of permanent life insurance, which probably goes a long way in explaining why the number of Americans with permanent life insurance has stagnated in recent decades.
According to the 2018 Life Insurance Needs Survey from Allianz Life, nine out of 10 respondents said they understand the terms of the death benefit—i.e., funds are paid to family and loved ones upon the death of the insured party.
But two-thirds of respondents are unsure or do not believe benefits paid from life insurance are non-taxable, and 51 percent do not believe cash value from life insurance can aid in supplementing other financial goals, according to the report.
Permanent life insurance has many of the benefits Americans value in financial products, says Allianz, even if many folks aren’t aware of it. In that vein, 85 percent of respondents said products that “provide a source of tax free income in retirement” were a top priority, while 78 percent said products that “provide a source of tax-free money for family/loved ones” and 68 percent said products that “provide the ability to use funds to pay for college” were also among highly valued product features, according to the report, which tries to make the point all of the above are attributes of life insurance.
“Too many Americans with significant retirement assets are not optimizing their financial strategy because they simply don’t know all of their options,” Jason Wellman, senior vice president of life insurance sales for Allianz Life, said in a press release.
The number of Americans with life insurance has flat lined on a numbers basis and fallen on a percentage basis during the past several decades.
Specifically, Americans bought 27 million life insurance policies in 1965—either individually or through an employer. By 2016, after the population had grown more than 50 percent, the number of life insurance policies sold remained at just 27 million, according to Peter Orszag, vice chairman of investment banking at Lazard.
Similarly, if the demographic groups in the U.S. behaved the same in 2013 as they did in 1989, 78 percent of American households would have life insurance policies—only sixty percent of American households actually do, according to a recent analysis from the Federal Reserve Bank of Chicago.
The gap in consumer education may be influencing this downward trend. Fewer families are buying life insurance, while those who do are buying more valuable policies, according to Orszag.
Financial advisors have an opportunity to educate clients about life insurance. Roughly 25 percent of the uninsured said they are interested in learning more about the product.