Life Insurance Shortfalls Hurt Women More, Study Finds

Insurance, Life Insurance
An attractive young woman using her tablet while her husband reads a book

A NerdWallet survey of more than 2,000 married adults found that 43% of those with life insurance say they would not be financially prepared if they lost their spouse — and women would be affected more than men.

While most of those surveyed said they have life insurance on at least one partner (67%), they still worry about paying all the bills if a spouse dies. Roughly 1 in 3 couples have no life insurance at all.

Married women have more concerns than married men:

  • 49% of women surveyed say their ability to make mortgage payments, save for college tuition and pay bills would be adversely affected by the death of their spouse, compared with 37% of men.
  • Women also were less likely to know the terms of their spouse’s life insurance policy (57% versus 69% of men) and more likely to be unable to find family financial documents in an emergency (32% versus 21% of men).

“The average life expectancy of Americans is at historic highs, and women are leading the way — now outliving men by an average of nearly five years, “ says John Kuo, senior strategy analyst at NerdWallet. “Couples appear ill-prepared to face this reality with sufficient life insurance coverage. This is an area where the longevity gap — which favors women — collides with the pay gap, where men earn more. The result is that women are often more financially vulnerable when their spouse dies.”

Couples with children are less prepared

Our survey results show that most Americans who have life insurance know some of the basics of their policies — such as the name of their insurance company, names of beneficiaries and where records are kept.

But that confidence erodes when they’re asked other crucial financial questions. Only 63% of those surveyed know the terms of their spouse’s policy, such as the length and face amount.

The results become more troubling for those with children: They are less likely to know the length and amounts of life insurance policies (58% compared with 67% of those who are married without children) and are more likely to say they would not know how to access all pertinent financial documents (30% compared with 23% for those without kids).

Question: If something happened to your spouse, would you know how to access all of your family’s financial records (such as bank accounts, investments, retirement accounts, insurance policies, and bills)?

Have children No children
Yes 69.6% 76.8%
I have access to some records, but not all 27.6% 20.1%
No 2.8% 3.1%

Question: Do you know the terms of your spouse’s life insurance policy, such as how long the policy is for, or how much the policy is worth?

Have children No children
Yes 58.2% 67%
No 17.7% 13.1%
I know some, but not all 24.1% 19.9%

Couples not talking about the inevitable

Among all the individuals we surveyed — with or without life insurance — only 55% of those with children know the final wishes of their spouse, such as burial preferences, compared with 73% of those without children.

More than half of those with life insurance underestimated funeral costs, which typically range from $7,000 to $10,000.

“Our results suggest that couples need to plan and talk more about end-of-life financial preparation and final wishes,” Kuo says. “It’s not a pleasant conversation, but it’s a vital one, ranging from burial preferences — cremation or burial? — to how you will provide for your children’s education, pay off your mortgage and take care of other financial responsibilities if either of you passes away.”

On a more positive note:

  • 94% of respondents say they know their spouse’s life insurance beneficiary
  • 86% of those with life insurance know how to make a life insurance claim if necessary.
  • 79% of those with life insurance know the name or names of their insurance carriers.

How much life insurance do you need?

“Major life changes can often impact the amount and duration of life insurance needed,” Kuo says. “If you have a baby, buy a house or even get divorced, it’s a good time to re-evaluate your coverage needs.”

If you’re wondering “Do I need life insurance?” the best way to calculate your life insurance needs is to add up all of your debts and obligations, then subtract your assets, Kuo says. For example:

  1. Calculate your financial obligations: Add your annual salary (times the number of years that you want to replace income) + your mortgage balance + other debts + future needs such as college and funeral costs. (If you’re a stay-at-home parent, add in the cost to replace the services that you provide, such as child care.)
  2. From that, subtract existing assets such as savings, existing college funds and current life insurance amounts.

» COMPARE: NerdWallet’s life insurance comparison tool

Methodology

NerdWallet conducted this national survey online Aug. 4-10, 2015, of 2,066 married adults age 25 or older via SurveyMonkey. Respondents were 50.15% women and 49.85% men. Nearly half of respondents (49.23%) had children under the age of 18, and 50.77% of respondents had no children. The survey’s margin of error is plus or minus 2 percentage points.

About NerdWallet

NerdWallet gives consumers clarity around key financial decisions at every stage of their lives. When it comes to credit cards, insurance, loans or expenses such as hospital costs, consumers make almost all of their decisions in the dark. NerdWallet is changing that, helping guide consumers’ decisions with free, accessible tools, research and expert advice that can’t be found anywhere else. We call it putting knowledge in your wallet.


Image via iStock.