Perhaps fueled by acute awareness of their own mortality, many Americans shopped for life insurance during the pandemic. But some lost interest when local COVID-19 cases declined, a new NerdWallet survey found.
More than a third (35%) of those who considered purchasing life insurance due to the pandemic — but ultimately didn’t buy — say they decided against it because COVID-19 cases in their area started going down.
This behavior suggests some people view life insurance as a “panic purchase,” says Grant Dunn, vice president of financial services at Lakenan Insurance, a brokerage in Missouri. “That’s not what life insurance is made to do. It’s not meant to protect people for the next six months while COVID cases are high in their area. It’s meant to protect the family during all of your income-earning years and beyond.”
If the pandemic highlighted a hole in your coverage, you’ll likely need to address it regardless of how COVID-19 cases evolve. Learn how to determine whether you need life insurance, despite current events, and get the right coverage for you and your loved ones.
Why some shoppers decided against life insurance
Conducted online by The Harris Poll, NerdWallet’s survey asked U.S. adults who considered buying life insurance due to the pandemic, but ultimately chose not to, why they decided against it.
35% say their decision not to buy coverage was because COVID-19 cases in their area started going down.
25% say it was too expensive.
24% decided their workplace coverage was sufficient.
Whether you need life insurance, how much you should buy and how much you should spend are not easy questions to answer. In the survey, 17% of Americans who considered buying life insurance due to the pandemic but decided against it say it’s because they don’t understand how it works, and 14% say they didn’t know where to start. Unraveling these concerns can help you set up a more robust life insurance plan.
How to determine if you need life insurance
Immediate threats like the pandemic may highlight a need, but they shouldn’t dictate your buying decision. After all, an unexpected death could come at any time, not just due to COVID-19.
Similarly, just because you’re suddenly conscious of what you’d be leaving behind, it doesn’t automatically mean you need life insurance. Before you shop for coverage, ask yourself these questions:
Will your death create a financial burden?
You typically need life insurance if your death would place a financial burden on others. The type of burden is different for everyone. For example, you may need a large policy to support a spouse or children for several years, or a smaller one to cover final expenses, like burial costs.
A quick way to estimate the amount of coverage you need is to add up your long-term financial obligations and subtract your assets. Another popular rule is to multiply your income by 10. But these quick tricks are just a guide. Online calculators can help you determine how much life insurance you need.
Is the financial burden temporary?
How long other people will rely on you financially can dictate the type of life insurance you need. For example, if you’re supporting a child through college, consider a term life policy that covers only the years you need. Term life lasts a set number of years and is typically less expensive than permanent life insurance.
Alternatively, if you plan to support a family member for the foreseeable future, you might want to consider a permanent life insurance policy, as coverage lasts your entire life.
Is your workplace life insurance enough?
After calculating the amount of life insurance you need, check whether you already have sufficient coverage. In March 2020, nearly 6 in 10 American civilian workers participated in a workplace life insurance plan, according to data from the Bureau of Labor Statistics. However, group life insurance provided by an employer is generally one to two times your annual salary, which may fall short of what you need. And life insurance through work is typically tied to your employment, meaning if you lose your job, you may lose your coverage.
Ultimately, “life insurance is purchased for a need,” says Kathleen W. Bilderback, estate planning attorney at Affinity Law Group in St. Louis. “Someone can catch coronavirus and pass away, but someone can just as easily get in their car tomorrow and die in a car accident. So, if the need is there, the need is there.”