The reduction in the number of people purchasing life insurance policies has reduced in the recent past, and this has become a major concern for the industry. In fact, most low-income earners do not seem to care about life insurance at all- only 27 million policies were bought in 2016, which, while it may seem like a lot, records indicate that the same number of policies was bought in 1965.
The policy sales remained the same despite the fact that there has been a 50% increase in population between 1965 and 2016. However, the decline remains a mystery. In fact, there was a 17% decline in the number of Americans with life insurance in the last three decades.
The reason for buying insurance varies from one person to another, and this might have an impact on the current number of life insurance policies. Some of the reasons include; covering for funeral expenses, making sure that mortgage payments are covered, and passing wealth to family or future generations. The demographic shifts have completely changed people’s motivations, and some of the reasons for having life insurance have become less important in modern society.
However, the poor performance in the life insurance industry can still not be explained by demographic and socio-economic trends. The cash value life insurance is a life insurance product that has been recording the lowest number of sales in the recent past.
The fact that the cash value life insurance policy provides a saving component should make it popular among policyholders. However, term life policies seem to be more popular among Americans, and yet it does not have the saving component.
Also, the massive decline in cash value life insurance policies that were experienced from 1992 to 2010 cannot be explained by changes in tax law or demographic changes. Life insurance decision should be determined by life expectancy, but it is also puzzling to know that this is not the case. There has been a rise in the overall life expectancy in the last few decades, and this can be used to explain the decline in life insurance policies.
However, life expectancy has only increased among high-income earners who form a small percentage of the entire population. On the other hand, there has been stagnation in life expectancy of low-income earners. Normally, this current trend in life expectancy should lead to a decline in the number of high-income earners with life insurance and increase in the low earners with life insurance.
However, the opposite seems to happen as there has been an increase in the number of high-income earners on life insurance as the opposite happens to low-income earners. This remains a puzzle that is yet to be solved.
