Fewer Americans are buying life insurance. Here's when you might need it

CNBC

Fewer U.S. households have bought life insurance in recent decades. Life insurance policies pay a death benefit, generally tax-free, to beneficiaries when a policyholder dies. Getting married, having kids and buying a home are common triggers for a purchase. Term life insurance policies rather than permanent policies (like whole or universal life) tend to be best for most people, experts said. Shapecharge | E+ | Getty Images

Fewer Americans are buying life insurance than in the past, which suggests households may be at financial risk in the event of an unexpected death, experts said.

About half, 52%, of consumers had a life insurance policy in January 2023, down from 63% in 2011, according to a poll by Limra, an insurance industry trade group.

Data from the National Association of Insurance Commissioners, a group of state insurance regulators, shows a similar trend: By 2019, coverage had fallen to 59% of households from 69% in 1998.

More from Personal Finance:
The best private and public colleges for financial aid
401(k) plan savings rates are at record-high levels
Why couples avoid talking about financial issues

“It’s absolutely clear to me there’s a very large gap here,” said Scott Shapiro, U.S. insurance sector leader at KPMG. “There’s a literal protection gap where Americans are flat-out underinsured.”

The main purpose of life insurance is to provide financial security for loved ones if the policyholder dies. At that point, beneficiaries receive a death benefit (which is generally tax-free).

That makes it “kind of a funny product: It’s something we buy and hope to never have to use,” said Matt Knoll, a certified financial planner based in Moline, Illinois.

Why life insurance purchases have ‘steadily’ fallen

Many Americans fail to plan ahead for their mortality, neglecting to draft wills, put a power of attorney in place or designate beneficiaries for financial accounts.

Overall, the share of households with life insurance has “steadily” decreased since the early 1970s, according to the NAIC.

There are likely many reasons for that drop-off.

For one, younger generations are deferring big financial and life milestones like getting married, buying a home and having kids relative to older generations. Each is generally a key trigger to buy life insurance, experts said.

Higher costs for homeownership and child care

CNBC

The full article is available here. This article was published at CNBC Finance.