Who Buys Life Insurance and Why

Life insurance sales are going up. Maybe not as fast as gas prices, but industry analysts are seeing what appears to be an upward trend. According to LIMRA (the Life Insurance and Market Research Association), insurance companies issued 2% more individual life insurance policies in 2011 than in 2010. This is on the fourth time in 30 years that life insurance policy sales have increased.  Which raises the question: who is buying life insurance, why and what are they buying?

Not surprisingly, a lot of life insurance is being purchased by aging Gen Xers, those born between 1965 and 1987, who are in their prime child-bearing years. A report released last January by Demographic Intelligence LLC, claimed that America’s Baby Bust is over.  Between 2007 and 2010, U.S. birth rates fell by 7%, largely because of the poor economic outlook. But the report predicts a baby boomlet is on the way and the U.S. will welcome more than 4 million newborn citizens before 2012 ends and that the trend will continue through 2013.

Demographic Intelligence, which is a leading provider of birth and fertility data for several industries, says this will bode well for the sale of life insurance. Since Generation Y is hot on the heels of Gen X, the baby boom and the increase sale of life insurance will probably continue, barring another devastating financial downturn.

These new parents are purchasing life insurance for the same reasons their parents did: to leave money behind to cover debts and expenses in the event of an untimely death. But they, and lots of people in other demographics, are also rethinking insurance as an investment vehicle – a way to save for college or fund retirement. That’s why whole life and other forms of permanent versus term life insurance are seeing an increase in sales. Whole life policies typically have minimal guaranteed returns ranging from 3 to 4 percent, though they can average 4.5 to 6 percent, which is a lot better than your average saving account and less risky than stocks. LIMRA data indicates that whole life policies increased 9% in 2011 versus 2010, which was the sixth consecutive year of positive growth.

Another feature of life insurance policy is that the income accrues tax-free (as long as you don’t cash it in) and in most cases, it is 100% protected from seizure by creditors. All attractive benefits in these uncertain times.