Americans say they want enough life insurance, on average, to cover expenses for at least 14 years after the loss of a breadwinner, but actually have only an average of three years of protection, according to new research commissioned by New York Life.
"My question is: What happens in the fourth year? If you pass away, your paycheck goes away and your family is still in need of income," Chris Blunt, co-president of the company's Insurance and Agency Group, said in a press statement. "It's no surprise that Americans are underinsured. What did surprise us was the magnitude of the gap and the fact that it has grown so dramatically since 2008, putting families at even greater financial risk."
Six years ago, Americans reported a median shortfall of $289,375 between their life insurance coverage and their financial needs. On average they said they had $300,000 of life insurance in place and their needs totaled $589,375.
In 2013, they reported having a median of $222,000 of life insurance in place and needing $540,000, a $320,000 gap.
The 2013 survey, based on responses from 1,000 Americans age 25 and older with dependents, found that families in the West are wrestling with the largest life insurance gap.
According to the survey:
- Westerners report having a median of $250,000 of life insurance in place, yet needing $707,000, resulting in a coverage gap of $457,000.
- In the Northeast, respondents have a median of $195,000 of life insurance in place and needing $529,000, with a coverage gap of $334,000.
- In the South, the median amount of life insurance in place is $250,000, compared to $552,000 in needs, producing a coverage gap of $302,000.
- Midwesterners report the smallest life insurance gap -- $229,000. They have a median of $201,000 of coverage in place and needs totaling $430,000.
Although the recession is over, only 68 percent of Americans say they feel financially secure, compared to 87 percent in 2008. Meanwhile, 22 percent of families report having no life insurance coverage, compared to 8 percent in 2008.