insurance

What determines life insurance popularity?

A state might have a lower number of life insurance policies in force simply because more lives are insured under group term insurance contracts, often offered by employers. Nearly 40 percent of the life insurance in force in the U.S. is through group term insurance, often provided by employers. A single contract between an employer (the policy owner) and an insurance company may cover hundreds, if not thousands, of employees' lives. Sometimes the dependents of employees, like their spouses and children, are covered under these contracts, too.

So a single contract does not equate to coverage for a single life but instead to coverage for many lives. States where group term insurance covers more lives will likely have lower policy counts, everything else the same. That doesn't mean that life insurance is less important in that state. But it does help explain why more policies may be in force in some states than others.

Average household sizes could also explain differences in the number of policies in force. Utahans have larger-than-average household sizes because they tend to have more children. Minors usually don't buy life insurance, and so it would make sense that where minors are more prevalent, fewer policies get sold, everything else (being) the same.

So I have offered four possible explanations as to why the number of policies sold per capita might vary among the states, including some explanations that are specific to the states of Idaho, Utah and Wyoming. There are also other possible explanations, too, that I (won't get into) now.

Your finding that the three states with the highest marriage rates do not have the highest number of policies in force probably speaks more to differences in marketing systems (influenced by incomes and geography) than it does to anything having to do with marriage. It also seems possible that differences in group term coverage rates and average household size (the last item for Utah only) affect policy counts per capita.

Besides being the states with the highest marriage rates, Utah, Idaho and Wyoming are also the states with the youngest median ages at which women first marry. Do you believe that young married couples should not worry about life insurance until later in their lives?

No. Life insurance provides money when the insured dies. There are many reasons why a young spouse might need this money, including to pay for burial expenses, living expenses and the costs of raising children, for example.

In the state of Utah, couples not only get married at a younger age than the norm, but they also start having children at younger ages than the norm and have larger families. Because they have not been in the workforce for many years, they haven't had much time to build up a nest egg to provide for (their) loved ones when they die.

So many young married couples in these states really do need a product like life insurance or a rich relative who is going to give their survivors a lot of money when they die.

Alabama, Louisiana and Mississippi are the top three states with the highest policies-to-population ratio. Why is life insurance more popular in the South than in the rest of the states?

I think the debit insurance system helps explain part of the differences, as does population density. I also think savings rates probably have something to do with it. Median incomes in Alabama, Louisiana and Mississippi are much, much lower than those in Utah, Wyoming and Idaho. This means that the share of folks with significant savings in the three Southern states mentioned is probably a good bit smaller than the share of people with significant savings in the three Western states noted. Life insurance death benefits are a substitute for savings. If a person has enough money saved to provide for their loved ones, then some say they don't need life insurance.

Another theory is that Southerners value their families more than others. I have lived in Wyoming and I have lived in Georgia, and I was raised in Iowa. I do not believe that family is any more or less important to anyone simply because of the state in which they were raised. Taking care of your loved ones is a value held all over this country. In the right circumstances, life insurance can help you do just that.

We would like to thank Lisa Gardner, associate professor of statistics and insurance at Drake University in Des Moines, Iowa, for her insights.

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