This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Why Americans Are Chronically Underinsured

NEW YORK ( TheStreet) -- Why is there such a financial gap between what Americans earn over the course of their lifetime and the amount of insurance they buy to protect those lifetime assets for their families and loved ones?

It's a question insurance industry analysts are asking, too, and the data benchmarks they're using show that financial gap could leave families woefully unprotected in the event of the loss of a breadwinner.

Figures from Nationwide Financial show that the average American who is "married, partnered or has dependents" is underinsured by $1.2 million.

Nationwide arrives at the figure like this:

Why the disparity?

Nationwide says it has something to with Americans' perceptions of wealth. To most consumers, $300,000 seems like a lot of money, and thus a healthy number for life insurance coverage.

"Too many Americans make the mistake of assuming that simply providing what may appear to be a large lump sum of money for their beneficiaries will be enough to protect them," notes Eric Henderson, a senior vice president of life insurance and annuities at Nationwide. "Instead, they should think about how much of their income the insurance money will replace. If it doesn't replace a high percentage of it, their family faces the risk of financial disruption or a reduced standard of living."

"It's simple math, but it doesn't add up for 49 out of 50 of those we surveyed," he adds.

Nationwide says the average U.S. life insurance policy covers only about 16% of a policyholders' lifetime earnings (before retirement) And only 2% of those surveyed have covered their life insurance needs "completely."

Those low figures are attributed to consumers having other financial obligations to fulfill.

"Filling a $1.2 million income replacement gap without life insurance is a tall order for surviving family members when you consider late life expenses such as college, weddings, retirement, health care and long-term care," Henderson explains.

Yet a $99 monthly payment over 20 years will yield a $2.3 million life insurance policy to a healthy 35-year-old American, Nationwide says. That's more than enough to seal that income/insurance gap.

"It's common for Americans to insure the entire value of their largest assets," Henderson offers. "For most of us, the income we will earn before retirement is far more significant to the financial well-being of our family than any material possession. The cost for enough life insurance to replace this income may be less than you spend to insure your home or car."

But to way too many Americans, a car or a home is a visible, tangible asset they can see and touch. Not so with insurance, and thus it gets short shrift in the family financial budget -- at a potentially huge cost.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,805.41 +127.51 0.76%
S&P 500 1,964.58 +13.76 0.71%
NASDAQ 4,483.7150 +30.9230 0.69%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs