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    The Surprising Life Insurance Gap of Higher-Income Individuals

    In a recent interview with Financial Planning, the CEO of LIMRA, David Levenson, revealed a surprising statistic: “Households with $100,000 income or more were most likely to be underinsured. About a quarter of these households (26%) had, on average, a life insurance coverage gap of nearly $400,000. Our data suggest that nearly 20% of families with that income have no life insurance coverage at all.”

    It’s no shock that people with higher incomes tend to have a higher standard of living, and since Social Security benefits are typically capped at a lower amount, this gap in insurance coverage means that, in the event of the insured’s death, their surviving loved ones may have to adjust to a lower standard of living.

    In this blog post, we’ll discuss the surprising life insurance gap of higher-income individuals, and give you tips for making sure you have the optimal life insurance coverage for your income level.

    How Much Life Insurance Coverage Do Higher-Income Individuals Need?

    Some factors to help you determine the amount of coverage you need include your current and future anticipated expenses, number of dependents, age of children, and the amount of debt you carry. A general rule of thumb when it comes to selecting a death benefit amount is ten times your annual income. This means, individuals making $100,000 per year should consider purchasing a life insurance policy with a $1 million death benefit.

    According to Business Insider, “Although you may select a $1 million death benefit, the underwriting process determines the amount of coverage you will be offered. If you're offered $1 million in life insurance and can afford it, it may be worth the extra security for your loved ones.”

    When a loved one dies, their surviving family members are often left to cover end-of-life medical expenses for the deceased. If the deceased was the primary earner for the household, their surviving spouse will still need to cover the cost of their family’s future medical bills.

    This can be a significant expense—by the time the average American turns 65, they will have spent an average of $400k on healthcare-related expenses—and that’s if medical costs rise at the same rate as inflation. If they rise just 3% more than the inflation rate, personal healthcare could cost over $2 million, and most people will incur the majority of the expense after they turn 45. Purchasing a life insurance policy can help give your loved ones the peace of mind that comes with knowing they can still cover their out-of-pocket medical expenses if the primary breadwinner of their household passes away.

    With the staggering cost of healthcare toward the end of life, a $1 million policy for higher-income individuals is a realistic coverage amount. Although you can always increase coverage amounts on your policy, it will become more expensive to obtain the same coverage as you age. If you qualify for a $1 million life insurance policy and can comfortably make the monthly payments, it’s best to get coverage sooner rather than later.

    The Consequences of Having Too Little or No Life Insurance Coverage

    According to LIMRA surveys in the article cited above, the premature death of the primary earner in the family would result in financial hardship for 44% of the responding households within six months, and 28% would experience financial strain in just one month.

    The aftermath of a loved one’s passing can be emotionally devastating, and it can be heartbreaking to see families dealing with the loss of a loved one while facing the harsh reality that they’re going to have to sell their home to make ends meet.

    Having the appropriate amount of life insurance coverage will give you and your loved ones the peace of mind that comes with knowing that your family will be financially protected, no matter what happens in the future.

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    Financial Planning Insurance

    Joan Cleveland

    Joan Cleveland, CLU, ChFC, REBC leads SWBC Life Insurance Company as President and CEO. With more than 30 years of experience in the life insurance industry. She holds her Agent licenses for Life, Accident, Health Insurance, and has multiple FINRA securities Licenses. Joan is a frequent industry speaker and media spokesperson. She is a member of the Board of Directors of the American Bankers Insurance Association, and co-chair for their Government Relations Committee. In addition she is chair of LIMRA’s Strategic Marketing Issues Committee.

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