Protection gap is widening

Just as the markets plummeted amid the recession, so did life insurance coverage among American families. In 2010, families whose primary breadwinner was under 55 had $32 in net assets and life insurance in place for every $100 of protection needed, which is down from $46 in 2001, according to data from The Swiss Re Group. In aggregate, the protection gap for American families headed by primary earners under 55 totaled $20 trillion, up from $18 trillion in 2001. “Mortality protection is lacking in many American families, and the growing protection gap is a worrisome trend for individuals and society alike,” said Milka Kirova, a senior economist at Swiss Re. Ms. Kirova, who co-wrote the report, pointed to a number of factors behind the widening of the coverage gap. The two recessions that occurred during the first decade of the 21st century eroded the average annual income for households run by earners under 55. That cohort saw a 12% decline in average annual income between 2001 and 2010, slumping to about $100,000. Further, lower investment returns, rising levels of debt and a decline in average available financial assets have also left households with less to go around — and less money for life insurance, as coverage for households headed by those under 55 declined by 25% in 2010 from 2001, according to Swiss Re. Consumers have also pointed to a lack of affordability and a host of other financial priorities as the reasons behind deciding not to buy more life insurance. “The contraction in the number of households with life insurance not only reflects the financial pressures of tight family budgets and the decline of employer-provided coverage due to cuts in employee benefit packages but also the relatively low priority consumers attribute to life insurance, versus other financial needs,” according to The Swiss Re report.