Multiple studies have tagged millennials as risk-averse, so why are they shunning life insurance?
Just 10 percent of the under-40 generation has enough insurance to cover all of their dependentsā needs in the event of an early death, according to a new study.
āToo many members of this generation are starting a family or buying a home without access to replacement income if the worst were to happen,ā said Brian Madgett, vice president of New York Life, the insurer that commissioned the survey of 1,738 adults of all ages who were married and/or had dependents and had annual incomes of at least $50,000.
In the study, millennials reported having a median $100,000 in life insurance coverage. The next-oldest generation, Gen-Xers, had $272,000, and baby boomers had $190,000. Then they were asked how that money would be used, from replacing current income to covering retirement and education costs. From those responses, the insurer estimated how much would actually be required to cover those costs. For millennials, that number was $452,000, implying a shortfall of 78 percent. Gen-Xers would need a median $525,000 and boomers, many of whom are now retired, would need $110,000, according to the estimates.
It would be easy to dismiss the numbers as self-serving warnings from a company that sells the product in question, but itās not a one-off. The industry as a whole reports that the percentage of households with coverage has been stagnant for more than a decade.
Experts say life insurance is simply being squeezed out by other priorities. Millennials are delaying families, so fewer of them may feel the need to buy insurance, particularly because high percentages of couples have dual incomes. Across all generations, the struggle to save for retirement and other pressing expenses cut into what can be put aside for disaster planning. And longer life expectancies mean more people are worried about outliving their savings rather than planning for the opposite.
āYounger people are also just more skeptical about being sold insurance products they donāt need,ā said David Flores Wilson, a New York financial adviser with affluent millennial clients. āAnd they just have vastly higher amounts of college debt (than previous generations).ā
For their part, insurers are working on streamlining the underwriting process and exploring new ways to make their products appeal to a younger audience.
In the meantime, even the youngest savers should at least contemplate how their current or future dependents would be affected by a worst-case scenario.
Term insurance, typically a young workerās best bet for creating replacement income for loved ones in the event of the workerās premature death, remains relatively cheap.
A 38-year-old non-smoking man could secure a $500,000, 20-year term policy for around $300 a year, according to the website term4sale.com.
If the same man would want to leave enough behind to replace $50,000 in income for 20 years, he would need policies that paid out a total of $772,000, assuming 3 percent annual inflation and 6 percent in investment returns over the period, the site estimates. Assuming todayās rates, says term4sale, that would cost about $430 a year.
ABOUT THE WRITER
Janet Kidd Stewart writes The Journey for Tribune Content Agency. Share your journey to or through retirement or pose a question at [email protected].