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The Under-insurance Crisis Nobody is Talking About: Life Insurance

The United States has been perpetually plagued by an under-insurance crisis in healthcare. In 2016 experts estimated that as many as 28.5 million people were without health insurance in the US. That’s about 10% of the American population. This under-insurance crisis has seen many proposed solutions, including the Affordable Care Act of 2010, but it’s an issue that continues to occupy the minds of Americans to this day.

There is another under-insurance crisis, however, that very few Americans know about. This one has to do with life insurance. A recent study has shown that 43% of Americans would be unable to meet their financial obligations as soon as six months after the death of a primary breadwinner. A simple life insurance plan would save these people from financial ruin should the worst happen, yet they don’t have life insurance. Thus an under-insurance crisis arises.

What is an Under-insurance Crisis?

An under-insurance crisis occurs whenever a population isn’t sufficiently insured to cover the events that a particular kind of insurance covers. For example, in the case of health insurance we say that there is an under-insurance crisis because many Americans find themselves without health insurance and, therefore, unable to cover the cost of treatment when they become sick or injured.

These crises have far-reaching implications; they’re harmful for many people and not just the uninsured. Again in the case of health insurance, uninsurance individuals create a strain on the system. When they unable to pay medical bills, hospitals must raise prices on the insured in order to meet their operating costs. This trickles down in the form of rising premiums and generally sends portions of the population into poverty by saddling otherwise financially healthy individuals with unreasonable costs.

Similar principles apply to life insurance. There are many Americans who have a need for life insurance, but when a large number of these people are uninsured an under-insurance crisis begins to brew. By leaving themselves uncovered in case of an emergency, the uninsured can be sent into poverty quickly and without a mean of escape.

It would also be a mistake to think that, just because a portion of the population is insured, that they cannot contribute to an under-insurance crisis. Insurance plans that don’t pay out enough money to cover the cost of an emergency contribute to an under-insurance crisis, albeit to a less degree than the uninsured.

Why is Nobody Talking About Life Insurance?

As we mentioned above, the under-insurance crisis in health insurance has received a lot of coverage, but the similar crisis with life insurance has not. As there has been little coverage of this serious issue, we can only speculate as to the causes, but some reasons stick out.

First, many potential life insurance policy holders overestimate the cost of life insurance compared to the payout. In fact, 80% of consumers overestimate the cost of life insurance, easily making this error a driving reason behind the under-insurance crisis.

The second reason why Americans might be under-insured has to do with a lack of knowledge about the types of life insurance policies available. There is little knowledge about life insurance for seniors, even though seniors as a population segment stand to benefit greatly from a strong life insurance policy. Indeed, such a policy can be crucial for seniors who are grappling with the surprisingly high costs of retirement.

A third reason might be a mistaken belief that, because dangerous jobs are less plentiful these days, a life insurance policy isn’t as critical as it once was. However, this thinking would be a mistake for seniors, many of whom have worked jobs with adverse long-term health effects in the past and many of whom saved for retirement on the older single breadwinner model. For seniors who do suffer from a difficult and dangerous job that they may have held in their youth, life insurance policies for pre-existing conditions are a good way to stave off under-insurance.

In conclusion, there is a very serious under-insurance crisis for life insurance in this country. Given the likely causes, the best solutions depend on a highly informed populace. This puts the responsibility on both life insurance companies and on consumers to dispel myths about high costs of life insurance and myths about the need for coverage among the senior population.