Most consumers unsure if they have adequate life insurance coverage for family

A majority of consumers lack confidence that their life insurance coverage is enough for their beneficiaries, according to a new survey from the National Association of Insurance Commissioners (NAIC).

Key Takeaways

  • Many consumers are unsure if their life insurance coverage will be enough for their loved ones.
  • Beneficiaries often need more than funeral costs met, so consider multiples of current income
  • Meeting living expenses and debt from home, car and medical expenses are big considerations
  • Check on the adequacy of your coverage with the help of financial planners.
  • Beneficiaries need to know about the policy, its location and its terms.

Many consumers unsure if their life insurance coverage is sufficient

The NAIC survey results reveal that 54% of respondents are uncertain or only somewhat confident that their life insurance benefit would meet the needs of their beneficiaries. 

However, most agree that if they died within the next decade, their beneficiaries would need their payout from the life insurance policy to cover future living expenses, according to the survey. 

The situation is reflected in the finding from a life insurance research organization that 42% of Americans say their household would face financial hardship within six months if a wage earner die unexpectedly and 25% would struggle financially within a month. LIMRA's and Life Happens barometer study conducted earlier this year found that more than half, or 53%, of the Americans it surveyed haven’t bought life insurance or added to their policies because unsure of how much coverage they need and what kind to buy.

This issue would reflect the lack of confidence in coverage the NAIC is finding. 

Life insurance is not just for funeral costs

“Their feelings are absolutely justified,” says Elsie Theodore, a Virginia-based regional vice president and principal with Primerica. Many believe life insurance is there simply to cover funeral costs, she notes. But after these basic costs are met, without the income of the deceased, a family’s “standard of living could be severely decimated.”

Overall, 65% of those the standard-setting body for state insurance regulators surveyed reported they have life insurance that they have purchased on their own or through their employer, or both.

But having enough coverage is vital, Theodore says. 

Rule of thumb coverage and the two C's

“The rule of thumb is for a covered person to have at minimum 10 times their annual salary in coverage,” she advises. If someone has an annual income of $100,000, they should be covered for at least $1 million, ideally. 

We look at a client’s entire life, and how long income will be needed for the children, Theodore says. There are “two Cs”—cost and coverage, she notes. Unfortunately, she says many people focus solely on cost, but Theodore finds it wise to focus on the "worst case scenario" should the breadwinner die.

Thus, when she counsels families with whom she places coverage, Theodore devises a plan that incorporates all of their financial obligations, including debt from mortgage, outstanding medical expenses, car notes and other loans in addition to living expenses. 

Policyholders taking important first steps in talking to beneficiaries

To be sure, those holding life insurance policies are being more proactive in certain ways, such as informing their beneficiaries about the policies and where they are located.

Almost 90% of those surveyed by the NAIC say their beneficiaries are aware of policies in place and 76% knew where the actual policies are kept. In fact, about two-thirds of policyholders have reviewed their policies with beneficiaries a year ago or more recently, according to the survey results. 

The NAIC followed up on its survey by offering tips to beneficiaries so that when the time comes, they will be prepared and even know of options for how to receive the money due them. Knowing these terms are important for consumers.

Tens of millions of dollars in death benefits actually go unclaimed each year because beneficiaries don't have key information on loved ones' policies, the life insurance company who backs it the amount of the benefit--or even where the policies are located, the NAIC points out. One suggestion, besides keeping the policy in safe place is to proactively inform beneficiaries or trusted advisors about the location and terms of the policy.

If you believe you are owed money through an unclaimed policy

If you do believe that you are a beneficiary of a life insurance policy, but don’t have the information you need to collect, the NAIC suggests that its 'Life Insurance Policy Locator Service' could help. Find it here:  NAIC LPL.

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  1. Limra and Life Happens 2021 Insurance Barometer Study; accessed September 17, 2021

  2. National Association of Insurance Commissioners Survey,