Life Insurance Product Type, Financial Knowledge, and Financial Adequacy

Abstract

Life insurance coverage is steadily declining with only about half of Americans currently holding any type of life insurance. This trend suggests that a growing number of households may have inadequate financial resources in the case of death of an income earner. This study describes the characteristics of households who are financially inadequately protected in the event of income earners' deaths and examines the role life insurance product type and financial knowledge for adequate financial resources. We use the 2022 Survey of Consumer Finances limited to households with at least one member who holds full-time employment, and living with two or more household members (n = 1818). We use repeated-imputation inference (RII) logistic regression analyses to examine households with adequate life insurance holdings, adequate net financial assets, and adequate net worth in the event of income earners' deaths. The data show that the majority of households in this sample have inadequate financial resources to compensate for the death of an income earner (56%) and that this group shows greater financial and health-related vulnerability. Through regression analysis, we find that all three adequacy measures were associated with life insurance product type, whereas financial knowledge was only intermittently significant. This study informs efforts to provide effective life insurance information and education.