Avoiding common gaps in life insurance coverage.
Did you hear about the border collie who just inherited a small fortune? We’re not kidding! It’s a true story about a man in Tennessee who loved his dog so much that he left her a $5M life insurance payout. Talk about a puppy payday! If you read that and thought, “huh, I didn’t know you could do that,” then you’re not alone. There are gaps in the way people think about life insurance. And those knowledge gaps often lead to missed opportunities when developing solid financial protection plans. So read on to learn what things people typically want covered, and how you can avoid the dreaded life insurance coverage gap.
The Wysh Blog
- What do people actually want covered?
- A problem that needs personalization
- Other types of life insurance coverage gaps
- In conclusion
What do people actually want covered?
Leaving money behind to cover your dog isn’t something that insurance companies holler from the rooftops. In fact, they never talk about it—probably because, compared to a house, the debt of your dog is fairly small (at least for those of us who have low maintenance pups). But if you don’t know this is an option, how are you supposed to plan for it?
Knowing that the average joe is clueless regarding these things, we wanted to identify the gaps in life insurance coverage. So, we surveyed around 2,000 people and learned that what they wanted covered varied considerably. (Heads up: We did this survey on June 15th, 2020, with a group of 1884 people in the USA, ranging in age, income, gender, and marital status).
So what did we find? Well, 66% of our surveys said their life insurance would go towards paying off their home, while others mentioned they hoped it would be used for things like their parent’s retirement, donations to a charity, and even caring for their plants! If you think about it, it makes a lot of sense; if you are someone who has a lot of pets or plants, making sure these things go to a good home when you’re inevitably 6-feet under is important—so plan for it.
A problem that needs personalization
Our data showed us that people have a lot of expenses, and by “a lot” we mean a lot. And some less obvious than others—from paying for Fido’s new home to paying for a parent’s retirement. Yeah, people have a ton of varied financial responsibilities that they don’t talk about, and that sh#t adds up! Even the small stuff like who’d take Aunt Joanie on her annual cruise? Or who would help mom get the house winter-ready? (Yep, those are things you can plan for).
On top of that, most life insurance companies only offer large incremental amounts of coverage, e.g., $100,000, 150,000, 200,000, and so on. Going back to the different debts in our study, it became clear people were either going to be underinsured or paying for coverage they don’t need. It seems very unlikely that everyone who gets life insurance has debts in these $50,000 increases. So why isn’t life insurance more flexible? Well, that’s the million-dollar question
Other types of life insurance coverage gaps
Apart from not getting the right amount of coverage, there are other types of gaps to be aware of. FYI, a gap, for the sake of this discussion, means you either don’t have enough, the right amount of, or any life insurance at all.
Policy lapses: When you don’t pay your premiums, your policy will terminate—It’s as simple as that. With no payments, you’re canceled within 30 days. Yep, canceled and no longer covered. You’ll likely get a heads up before this happens, but you can avoid all that by trying to remember when your premiums are due and paying them. Also, suppose your policy lapses and you want to get a new one. In that case, your coverage amount may be higher since you will need to undergo underwriting again, but this time you’ll be long(er) in the tooth and perhaps in the worst shape.
Expired policies: If you have Term Life insurance, your policy has an end date, generally between 10 and 30 years from when you got it. If you have Whole Life insurance, there is no end date. For those with Term Life, be aware of when this end date is and decide prior to it if you want to get a new policy or lose all your coverage.
After you apply but before your policy is approved: Some companies will be able to immediately give you life insurance at the end of your application process. You will see this with a lot of Insurtech companies, for example, which use instant underwriting. However, other companies take days, if not weeks, to review your application and underwriting. During this time, you are not covered for life insurance. Pay close attention to your insurance company’s approval period, and make sure you’re aware of when to expect an answer if it’s not instantaneously.
So when taking out a policy, remember to look at the details and make sure you know when the policy starts, when to pay it, and how long it lasts. This might seem straightforward, but this policy is basically a long-term relationship—something that will be with you for 10-30 years, on average. And so, you’ll probably forget a detail or two during that time.
Circling back to our doggo friend, we realized life insurance—as it is today does—is not so flexible. Basically, it’s hard to have payouts across different and specific types of debt. And most of the time, there are large incremental increasing amounts of coverage you can buy—not ideal. With that said, if you’re looking to take out life insurance, try visualizing all your debts in one place; this way, you won’t forget about things like your pup. And although companies don’t readily offer this debt breakout as part of the insurance process yet, who says you can’t? So take matters into your own hands. Jot all your expenses down, figure out what things you hope to help pay for in the future, add all that up, and you’re all set! That should help give you an idea of the total coverage amount you’d want and you’ll have the satisfaction of knowing that you figured it all out by yourself.