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Study: Life insurance coverage drops 24 percent in past decade

By Maryalene LaPonsie on October 5th, 2012

Swiss Re, a wholesale insurance and reinsurance provider, says the level of life insurance coverage in the U.S. is dropping.

Although life insurance rates remain relatively affordable, a study from the organization indicates there is a growing "protection gap" in the country. In its publication "The mortality protection gap in the U.S.," Swiss Re estimates there is a $20 trillion gap between the resources dependents need to maintain their quality of life after a breadwinner dies and the amount of resources actually available to them. This gap has increased 10 percent since 2001.

Life insurance benefits are a common way to provide a surviving spouse or dependents with the money they need to maintain their quality of life. However, the report discovered life insurance coverage per family dropped on average 24 percent since 2001.

Midlife families at greatest risk

According to Swiss Re, families headed by a primary breadwinner between the ages of 35 and 44 were most likely to be unprepared for a loss. In addition, families headed by a breadwinner younger than age 55 had, on average, a $377,900 protection gap in 2010.

"The U.S. protection gap has reached staggering dimensions," said Neil Sprackling, Swiss Re head of life and health for North America, in a prepared statement. "Life insurers have a unique value proposition in helping society close the gap and have a key role to play in helping to educate people on the benefits and affordability of life insurance."

While life insurance rates are estimated by the company to cost only 0.4 percent of a family's income, coverage purchased on the individual market has been steadily declining. Since 2007, the volume of new life insurance policies purchased on the individual market has declined annually by 5 percent on average.

However, consumers do appear increasingly aware of the importance of life insurance coverage, and many recognize they are underinsured. Data published by industry group LIMRA to mark the occasion of Life Insurance Awareness Month in September found two-thirds of all Americans say life insurance brings peace of mind, and half of those uninsured agree they need more life insurance.

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