About 90 million Americans depend on life insurance for financial protection and retirement security.^[1] An almost equal number say that they either do not have any life insurance or need more life insurance.^[2] More than one-third say they plan to purchase coverage in the next year.^[3]

With very few exceptions, life insurance can benefit everyone. Owning life insurance is necessary, especially if you have dependents. But while you might understand that buying life insurance is a good move, you may be unsure whether you have enough, how to determine the ideal amount for you and your family, and where life insurance fits into your overall financial and estate plans.

Life Insurance Statistics and Trends

According to the 2024 Life Insurance Barometer Study from LIMRA and Life Happens, two nonprofit industry trade associations, about half of US adults report having life insurance.^[4] The study found that more than 100 million Americans are living with a life insurance gap—the highest number in the study’s 14-year history.^[5] This gap is higher among women than men and highest among Americans earning less than $50,000.^[6]

For the last five decades, the percentage of American adults with life insurance has steadily declined, from over 80 percent in 1975 to just 52 percent in 2023, says Guardian Life.^[7] Coverage amounts are also declining, even as the cost of living continues to rise.^[8]

Top Reasons to Buy Life Insurance

Most people buy life insurance to provide tax-free income replacement to their family in case they suddenly pass away.

Insurance experts recommend buying life insurance with a death benefit equal to at least 10 times your salary.^[9] For example, if you earn $50,000 per year, you would want to buy a minimum of $500,000 in coverage.

A $500,000 policy might sound like a lot of coverage, but this amount does not exist in a vacuum. It must be considered alongside factors like family size, debt levels, and financial goals—all of which can change and require additional coverage. 

You may also need more coverage if you are using life insurance for a purpose other than (or in addition to) leaving money to your loved ones.

Other reasons to buy life insurance beyond income replacement include the following:

• Using the cash value to pay off a loan, protect existing assets, or build an emergency fund
• Making charitable contributions
• Funding buy-sell agreements for a business
• Providing flexibility to your estate plan
• Covering specific expenses, such as a child’s education, wedding, or travel, with a life insurance trust

How to Purchase the Right Policy and Amount

Most insurers offer coverage limits ranging from $100,000 to several million dollars per policy. Insurers often cap individual policies at $5 million to $10 million, although you can have more than one policy. There are many reasons why you might want to have multiple policies.

From term life and whole life to variable life and group life to nontraditional policies like indexed life and supplemental life, you should focus on the policies that make sense for your needs and goals. However, this may not be as simple as it sounds.

The reasons for buying life insurance—and the corresponding coverage amounts needed—can change over time. Here are some situations that could prompt you to reconsider your life insurance coverage:

• You recently started a family, and your employer-provided group life insurance is no longer enough
• Your family has grown, and your life insurance policy should grow accordingly
• You have taken on a significant amount of debt
• You purchased term life insurance earlier and now want the benefits of whole life insurance later in life
• You have retired and no longer have your employer-provided life insurance policy
• Your income increased
• Your stay-at-home spouse is uninsured

Talk to an Attorney about Life Insurance and Estate Planning

The reasons for buying life insurance are as varied as the available policy types. If you are among the more than 100 million Americans facing a life insurance coverage gap, an attorney, working with a financial planner and insurance agent, can ensure you purchase the right policy and maintain the right amount of coverage.

Your life insurance policies and estate plan should be revisited every three to five years. Even if you have enough insurance, we often see policyholders making mistakes such as naming their estate as the beneficiary, not updating beneficiary designations, not naming contingent beneficiaries, and naming minor children or special needs beneficiaries without setting up a custodian or trust. 

It can be a mistake to silo your financial planning, retirement planning, wealth management, and estate planning. By viewing them as parts of a whole, overarching plan that serves the same overall goals, you and your family will be better prepared for the future.

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^[1] News Release, American Council of Life Insurers (ACLI) Statement on Proposed Labor Department Regulation, ACLI, (Oct. 31, 2023), https://www.acli.com/posting/nr23-070#:~:text=The%20American%20Council%20of%20Life,financial%20protection%20and%20retirement%20security.

^[2] U.S. Life Insurance Need Gap Grows in 2024, LIMRA (Apr. 15, 2024), https://www.limra.com/en/newsroom/news-releases/2024/u.s.-life-insurance-need-gap-grows-in-2024/.

^[3] Id.

^[4] Id.

^[5] Id.

^[6] Jennifer Lobb, Life insurance statistics and industry trends 2024, USA Today (Jan. 24, 2024), https://www.usatoday.com/money/blueprint/life-insurance/life-insurance-statistics/.

^[7] Prepared and Protected, Guardian 12th Annual Workplace Benefits Study, Guardian, https://www.guardianlife.com/reports/prepared-and-protected (last visited May 28, 2024).

^[8] Id.

^[9] Andrew Beattie, How Much Life Insurance Should You Have?, Investopedia (May 24, 2024),https://www.investopedia.com/articles/pf/06/insureneeds.asp.