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Life insurance can be a complex topic but seeing some plain facts and statistics can help illuminate it. Whether trying to determine what kind of policy you need or how much coverage to seek, navigating life insurance is easier when you have a clear picture of what’s happening. Learn the facts and see which insurance beliefs are myths versus which are true.
Life insurance facts and statistics
- In 2022, 106 million American adults were without life insurance or underinsured.
- 50 percent of Americans reported owning life insurance in 2022. Comparatively, 52% of Americans reported owning life insurance in 2021.
- All income levels are now less likely to say they have life insurance coverage.
- More than 50% of Americans overestimate the cost of life insurance by 300%.
- 30% of Americans believe life insurance is only for end of life expenses, leading them to not purchase enough to provide income replacement or allow wealth transfer.
- Life insurance premiums increased by 21% in the second quarter of 2021, the largest year-over-year increase since third quarter 1987.
- Gender, age, smoking status, health, medical history and other factors impact your life insurance rates.
- The suicide clause refers to a clause that usually lasts about two years, in which an insurance carrier won’t pay out for death by suicide.
- Some life insurance policies exclude coverage if the insured died while committing a felony. Additionally, if the policyholder was murdered by the beneficiary, the benefits are typically not paid out, which is known as the slayer rule.
- More men report feeling very knowledgeable about life insurance than women, by a difference of 17%.
How many people have life insurance
According to LIMRA’s 2022 Insurance Barometer Study, 53 percent of all people in the United States were covered by some type of life insurance in 2021. However, as of 2022, the gap between those who have life insurance and those who still need it is 18 points, more than twice as much as the gap from 2011.
Compared to 2021, the need-to-have gap has remained consistent regarding the percent of people who hold policies. Of those insured, 26 million require more coverage than they currently have, but only 53 percent reported being likely to obtain more. The top three reasons found to be a barrier between consumers purchasing adequate or any life insurance included coverage being too expensive, having other financial priorities or simply not knowing how much or what type of coverage to buy.
Life insurance claims statistics
In 2021, insurance benefits and claims totaled $790.8 billion, according to the Insurance Information Institute (Triple-I). Compared to 2020, when benefits and claims totaled $ $747.4 billion, the total increased.
This amount includes death benefits, annuity benefits, disability benefits and other payouts. The largest payout in 2021 was $367.2 billion for surrender benefits and withdrawals from life insurance contracts made to policyholders who terminated their policies early or withdrew cash from their policies.
Life insurance statistics by age
One of the most significant determining factors in life insurance costs is age. The premium amount increases on average eight to ten percent for every year of age. Age can also influence whether a person qualifies for life insurance coverage at all. While age may preclude you from some policies, other types are often geared towards older individuals.
Other interesting life insurance statistics around age include:
- 34 percent of individuals aged 18 to 24 own life insurance, whereas 57 percent of individuals aged 65 and older own life insurance according to LIMRA’s 2022 Insurance Barometer Study.
- Those under age 25 are the only group that has increased life insurance ownership since 2011.
- As of 2022, 27 percent of people aged 65 and older reported having life insurance through an employer, down eight percentage points from the proportion reported in 2011. This indicates that there is an increased likelihood of people having coverage after retirement age.
- Millennial and Gen X generations are significantly more likely to own term life insurance when compared to younger and older generations.
- 72 percent of Gen Z Americans are likely to own permanent coverage, the most likely group of the generations.
- Gen Z represents the highest number of individuals with a need for more coverage, at 48 percent. Comparatively, Baby Boomers show a 30 percent need gap, the smallest gap of the different generations.
- The average life expectancy in the U.S. in 2021 was 76.1, down almost a full year (0.9) from 2020.
Life insurance industry statistics
The life insurance industry, like many others, has gone through tumultuous times since the beginning of the COVID-19 pandemic. While the industry saw some downturns during 2020, certain metrics (like revenue) point towards renewed growth during 2021.
- Revenue-wise, the life insurance industry generated $945.7 billion in 2021, a 64 percent increase from 2020’s $881.2 billion.
- $820 billion in direct premiums were written by line, life/annuity insurance in 2021
- About four-fifths of the revenue from life insurance premiums came from ordinary, direct policies. The other one-fifth came from group life policies. This distribution has stayed mostly consistent for at least the last three years.
- Other avenues of revenue for life insurance companies include net investment income, reinsurance allowance, separate accounts revenue, and other income, totaling $307.8 billion.
- At 11.3 percent, MetLife has the largest market share of the life insurance industry for direct premiums written, followed by Equitable Holdings (9.6 percent) and Prudential (6.9 percent).
Life insurance myths and facts
It’s not surprising that having accurate information about life insurance may be less common than myths around these policies. Life insurance is just as subject to myth and falsehood as any other industry or knowledge base. Thankfully, unlike more esoteric matters, insurance policies and facts are backed by numbers and contracts. With that in mind, let’s review some of the more common myths about life insurance and learn what is really going on.
Myth 1: Life insurance is only for healthy, middle-aged adults.
Fact: You are never too old or too young to purchase life insurance. It’s true that your costs will generally increase as you age and that people with illnesses or certain risk factors may pay more, but there are life insurance policies available for everyone.
Myth 2: I’m single or married with no children, so I don’t need life insurance.
Fact: Your loved ones can use life insurance benefits to pay off your debts, including student loans, mortgages, and car loans. It can also be used to take care of your final expenses, such as burial.
Myth 3: My student loans will be forgiven when I die, so I don’t need life insurance.
Fact: To keep it simple, it depends on the type of student loans you have. Federal student loan debt is forgiven upon death or total disability, and family members are not responsible for it. In this case, a life insurance payout could go to other things such as living expenses or funeral costs.
Private student loan debt can be different and is not as cut and dry. You’ll need to ask your lender if they provide student loan death forgiveness, which will give you a better estimate of how much life insurance coverage you need.
Myth 4: My beneficiaries will have to pay income taxes on the proceeds of my life insurance policy.
Fact: Life insurance benefits are generally income tax-free up to a certain threshold, according to the Internal Revenue Service (IRS). However, any interest payments on top of the policy may be taxed.
Myth 5: If I get a term life insurance policy, I can’t convert it to a permanent or whole life policy.
Fact: It is possible to convert some term life insurance policies, depending on the policy you purchased. However, you should find out the details from your agent before buying your policy.
Myth 6: Once my children are adults, I don’t need life insurance.
Fact: Having life insurance later in life has many advantages, like relieving the burden of funeral costs, paying state estate taxes, paying off your debt or simply giving your children a nest egg they can use to help support their own families.
Myth 7: I don’t need life insurance since my savings is at a comfortable amount.
Fact: The national median cost of a funeral with a viewing and burial is $7,848, according to the National Funeral Directors Association. Your savings were likely for retirement, so your loved ones may have to pay for your funeral costs if there is not enough left over. Additionally, if you have any debts, your estate will use your savings to pay for those, which could reduce the amount left for your beneficiaries.
Myth 8: I cannot afford life insurance.
Fact: Consumers often overestimate the cost of a term life insurance policy. Many individuals are surprised to learn that a healthy 30-year-old could potentially get a $250,000 20-year level term policy for just $13 a month. With this policy, beneficiaries would receive the full $250,000 (as most are tax-free) if they were to pass away between 30 and 50.
Life insurance can be very affordable, depending on the type and amount of coverage you need.
Myth 9: I draw no income. I don’t need life insurance.
Fact: If you’re a stay-at-home parent, you don’t bring in an actual paycheck, but you likely provide services that could cost a lot of money to replace, such as child care, daily transportation, cooking and more. Life insurance benefits can help replace some of these costs.
Myth 10: Life insurance does not cover death by suicide.
Fact: Life insurance actually does often cover a policyholder’s death by suicide in many cases. Frequently, however, life insurance policies include contestability and suicide clauses which must expire before the benefit will be paid out. This period is usually two to three years, but beneficiaries may receive the death benefit once the clauses expire.
Myth 11: If you have health issues, you cannot get life insurance.
Fact: While health is often used to calculate rates and coverage amounts when determining a policy’s premium, it doesn’t mean that life insurance is out of the question with a pre-existing condition. Guaranteed issue life insurance is a type of policy that bypasses the standard health requirements for life insurance policies.
These policies forgo medical exams and use only limited medical questionnaires. Depending on the provider, the plan may require that you be at least a certain age, but outside of non-health parameters like that, these policies generally make it easy to qualify. The downside is that they tend to cost more and have lower coverages than some more restrictive policy types.
The bottom line
The life insurance industry has seen a lot of shifting over the past couple of years, causing a slight decline in the overall growth trend. Many of the barriers that prevent people from purchasing life insurance policies are still in place, although there is some evidence of increased access and awareness. The gap between how much coverage people have and how much they might need is still significant.
Despite positive industry metrics in many other areas, the overall percentage of Americans covered by life insurance declined by around two percent between 2021 and 2022. Despite this negative trend in policyholders, revenue has grown considerably over the last few years.