Market Watch reported last month on new research that suggests that many community members are misinformed about the cost of certain types of insurance. As New York estate planning attorneys we understand the importance of life insurance policies in many local resident’s financial planning efforts. Similarly, an important part of an elder law estate plan often involves securing long-term care insurance. Misinformation about the practicalities of these insurance options may leave local residents less legally and financially secure down the road.
The latest research focuses mostly on life insurance and was conducted by LIMRA and the non-profit group, LIFE (Life and Health Insurance Foundation for Education). Most surprisingly, the effort–conducted via surveys–found that consumers often overestimate the cost of life insurance. The confusion about the costs means that some families may have less protection than they need.
The research involved asking respondents to estimate the cost of different types of policies. The average estimates were four to seven times higher than the actual cost. For example, the annual cost of a 20-year, $250,000 life-insurance policy for a healthy 30-year old is about $150, but the average consumer guess was over $400.
Our New York City estate planning lawyers understand that buying more life insurance is not always in the best interest of local residents. However, there are times when it might be a prudent choice. Understanding whether it is a good fit requires an accurate understanding of the costs and benefits.
A 2012 “Insurance Barometer” study found that 66% of consumers admitted that they needed more life insurance. The main reason that they did not have it was because it was “too expensive.” However, this latest research suggests that misconceptions about the cost may be influencing that assessment. The research found that women, minorities, and young adults were the most likely to be underinsured and misinformed about the costs of life insurance.
The CEO of LIMRA explained that it was the group’s hope “that the broader industry will use these insights to help address the crisis of underinsurance this country faces.”
At the end of the day, insurance needs must be based on each individual’s very specific circumstances. Long-term care insurance, for example, will have very different costs depending on the age and health of the one purchasing the policy. Also, it is important to remember that insurance is one part of the overall financial and legal planning that should be conducted to ensure one’s affairs are secure in the future.
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