Most U.S. adults greatly overestimate the annual cost of a $250,000, 20-year term life insurance policy, believing coverage costs at least two to three times what it really does.
The Average Annual Cost Of Coffee
At the same time, people routinely spend more each year on lattes and out-of-office lunch runs than what a standard term policy would cost. For example, the average U.S. adult spends at least $1,100 on coffee drinks outside the home – nearly 3 times more than the annual cost of a $250,000 term life policy for a healthy, 30-year-old non-smoker.
In another intriguing look at spending habits, working Americans shell out an average of $36.17 each week on lunch outside the office, according to a 2013 study by Accounting Principals.
That is more than the monthly premium for a healthy 40-year-old with $250,000 in term life coverage. In a separate, larger study, Visa found people eat lunch outside the office twice a week, spending at least $80 a month, or nearly $1000 a year.
Confusion rampant about life insurance costs
The scenarios above use a 20-year term policy because it is among the most popular insurance products. The policy costs cited are industry averages, not quotes, and will vary by both carriers and applicants. Still, the gap between actual and perceived cost indicates widespread confusion.
The gap is documented in The 2015 Insurance Barometer Study, by LIMRA and non-profit Life Happens. LIMRA, a leading global insurance and financial services trade association, conducts the study every year.
“We’ve consistently seen over the last five years that consumers think life insurance is more expensive than it really is, and now we’re seeing many are also confused as to what factors determine the cost for life insurance,” Marvin Feldman, CLU, ChFC, RFC, president and CEO of Life Happens, said when the 2015 study was released in April.
“We need to help educate the public about how affordable life insurance can be and the factors they can control to ensure they get the best and most comprehensive protection possible,” Feldman said.
Fight misperceptions with data and examples
The confusion creates opportunity for Life and Health Agents, who can provide quotes and context. Comparing the true cost of a life insurance policy with routine spending habits is a great approach. Most people don’t think about how much their coffee shop stops and “quick bites” cost each month, let alone over a year.
Americans believe life insurance is important to help secure the financial future of loved ones but fail to understand how affordable it can be. At the same time, most prioritize short-term spending on vacations, entertaining, dining out and shopping over longer-term insurance planning, LIMRA said.
Millennials and Gen Xers particularly must understand life insurance costs far, far less when they buy it early in their careers. The monthly cost for a $250,000 policy averages $30 for a non-smoker aged 35; $51.62 for someone aged 45; and $121.28 for someone aged 55, according to a study by ValuePenguin.
Individual agents can draw on trade association resources plus those offered by carriers to walk potential customers through the facts – and help them set priorities. They may not realize that few fewer lattes and some bag lunches each month can make such a difference.