Is Your Life Insurance Keeping Up With Life? Why Many Americans Are Underprotected
Roughly half of Americans have life insurance, according to industry estimates. Still, fewer people own policies that will adequately protect their families beyond their current jobs. Is that a cause for concern? Many financial advisors say yes.
The Underinsurance Gap: Why It Exists
The insurance industry naturally wants to see more Americans insured, but the issue goes beyond sales targets. Many families simply don’t purchase enough life insurance given that they don’t fully understand how it works. Fewer than 3 in 10 Americans sense knowledgeable about life insurance, a 2025 Insurance Barometer Study revealed.
“For the most part, we see people who are underinsured,” says Justin Dempsey, senior manager for direct-to-consumer business at The Banner Life family of companies.
Who Needs Life Insurance – And How Much?
Let’s break down scenarios where increasing life insurance coverage is a smart move.
Young Workers Starting Families
Around 55% of working adults have life insurance through their employer. While this is a good start, it’s often insufficient. Employer-provided “group” life insurance is affordable and convenient, but the payout is typically limited – often only one or two years of your salary.
“Group” life insurance is cheap and convenient. But the payout isn’t very high, and the coverage typically ends if you leave the job.
Keith Singer, a certified financial planner in Boca Raton, Florida, explains, “If they give you two years’ worth of your salary, then you’re basically giving your dependents two years’ worth of your lifestyle after you die. And unless your dependents are going to become independent within two years, it’s never enough.”
Financial experts recommend supplementing employer coverage with an individual term life policy. Term life insurance provides coverage for a specific period (e.g., 20 or 30 years). A $1 million, 30-year term life policy for a healthy 30-year-old can cost less than $600 annually.
Older Americans and Long-Term Care Costs
Many Americans are unprepared for the rising costs of long-term care. Over 80% will eventually need assistance with daily activities, and the average assisted living facility charged $5,900 a month in 2024.
Holly Snyder, president of Nationwide Life Insurance, notes that this represents a significant unmet need in the insurance market.
While traditional long-term care insurance is an option, it can become expensive. A potential solution is a life insurance policy with a long-term care rider, allowing you to use the death benefit to cover care costs. This offers flexibility, as beneficiaries still receive the death benefit if long-term care isn’t needed.
Catherine Valega, a certified financial planner in Winchester, Massachusetts, highlights the benefit: “The nice thing about these hybrid products is, someone gets the money back one way or another.”
High-Wealth Households and Estate Planning
Life insurance isn’t just about death benefit payouts. Permanent life insurance policies, such as whole, universal, and variable life, can build cash value over time. This cash value can be accessed through loans or withdrawals and used for retirement, education, or other financial goals.
Nick Lamanna, wealth management advisor at Northwestern Mutual, explains, “It does act as a flexible financial tool to build cash. It could fund retirement. It could fund higher education.”
Life insurance policies as well offer tax advantages, with tax-free death benefits and potential tax benefits on cash value growth and withdrawals.
Who Might Not Need Life Insurance?
We find situations where life insurance may not be necessary.
Retirees
If you’re no longer working and there’s no income to replace, life insurance may not be essential.
Individuals Without Dependents
If no one relies on your income, the need for life insurance is diminished.
Older Americans
As you age, life insurance premiums increase. Beyond a certain point, the cost may outweigh the benefits.
FAQ
Q: How much life insurance do I need?
A: A general rule of thumb is 10-12 times your annual income, but this varies based on your individual circumstances.
Q: What’s the difference between term and permanent life insurance?
A: Term life provides coverage for a specific period, while permanent life offers lifelong coverage and builds cash value.
Q: Is life insurance expensive?
A: The cost depends on your age, health, coverage amount, and policy type. Term life is generally more affordable than permanent life.
Q: Can I change my beneficiary?
A: Yes, you can typically change your beneficiary at any time by contacting your insurance provider.
Desire to learn more about securing your financial future? Explore our other articles on retirement planning and estate management.
Related reading