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COLUMBUS, Ohio — Most American households are dangerously unprepared for a tragedy that could strike at any moment. Recent research from The Ohio State University reveals that 56% of households with a full-time worker and multiple family members lack adequate financial resources to handle an income earner’s death. This widespread vulnerability exists despite decades of financial professionals emphasizing the importance of proper planning.
The Alarming Protection Gap
Life insurance ownership in America has declined dramatically—from 77% of households in 1989 to just 52% in 2023. For younger generations, the statistics are even more concerning: only 40% of Gen Z and 48% of millennials have any coverage at all.
The research team analyzed data from 1,818 households using three different measures of financial adequacy:
- Life insurance adequacy: Comparing life insurance coverage to future household earnings
- Net financial asset adequacy: Combining life insurance with liquid assets
- Net worth adequacy: Adding total net worth to life insurance coverage
Only 11% of households met the life insurance adequacy threshold, while 17.2% achieved net financial asset adequacy and 15.65% reached net worth adequacy. Most concerning, 56.16% failed to meet any of these standards.
Households with adequate protection shared several characteristics. They typically had higher financial knowledge, were older (early 50s on average), and had accumulated substantial assets despite having similar income levels to inadequately protected households. They predominantly owned term life insurance policies (61%), with smaller groups owning both term and cash value policies (25%) or exclusively cash value policies (14%).
The inadequately protected majority were younger (average age 40), had lower financial knowledge, and were less likely to use financial professionals. These households also had higher proportions of Hispanic individuals and single/divorced/widowed members, pointing to potential societal inequities in financial protection.
Why Product Type Matters
The research, published in Financial Planning Review, uncovered that life insurance product type significantly affects financial adequacy. Households with both term and cash value insurance demonstrated the highest odds of financial adequacy across all measures. Term-only policies showed stronger associations with adequacy than cash value-only policies.
This finding challenges conventional wisdom about cash value life insurance, often marketed for wealth-building. The significantly higher premiums for cash value products may lead consumers to under-insure due to budget constraints. The monthly premium difference is striking—a 30-year-old male seeking a $1 million policy might pay $63.75 monthly for a 20-year term versus $791.94 for a whole life policy.
The Knowledge Factor
Financial knowledge influenced adequacy in complex ways. For working adults, objective financial knowledge (correctly answering financial literacy questions) didn’t significantly increase adequacy odds. However, subjective financial knowledge (self-assessed financial competence) and consulting financial professionals correlated with higher odds of financial asset adequacy.
Interestingly, for retired households, objective financial knowledge significantly increased the odds of financial adequacy, suggesting that as people progress through life stages, knowledge-based wealth accumulation becomes more important than protection against income loss.
Closing the Protection Gap
These findings raise serious questions about the effectiveness of the life insurance industry’s educational efforts and marketing strategies. Despite industry emphasis on protection planning, most households remain inadequately covered. The traditional focus on selling high-commission cash value products may not serve the public’s best interests.
For American families, achieving financial adequacy requires more than just steady income. Proper protection against financial devastation after an income earner’s death demands thoughtful planning that considers life insurance coverage, financial asset accumulation, and overall net worth.
As household debt continues to climb and financial insecurity persists for many Americans, addressing life insurance coverage becomes a critical public policy concern. Without adequate protection, families remain just one tragedy away from potential financial ruin—a vulnerability that extends beyond individual households to affect communities and the broader economy.
Paper Summary
Methodology
The researchers analyzed data from the 2022 Survey of Consumer Finances, focusing on 1,818 households that had at least one full-time employed member and contained two or more people. They created three measures of financial adequacy. The first compared the face value of life insurance to the present value of future household earnings (life insurance adequacy). The second added net financial assets to the face value of life insurance (net financial asset adequacy). The third replaced net financial assets with total net worth and added it to life insurance face value (net worth adequacy). For each measure, households scoring 1.0 or greater were considered “financially adequate,” meaning they had sufficient resources to compensate for the loss of income if an income earner died. The researchers then used statistical analyses to determine what factors were associated with meeting each of these adequacy thresholds, employing repeated-imputation inference (RII) logistic regression analyses to account for the complex survey design.
Results
The study found that only 11% of households met the life insurance adequacy measure, 17.2% met the net financial asset adequacy measure, and 15.65% met the net worth adequacy measure. The majority (56.16%) failed to meet any of these thresholds. Households with adequate financial resources showed distinct characteristics: they had higher financial knowledge, were older (early 50s on average), and had substantial assets despite having similar income levels to inadequate households. Life insurance product type strongly predicted financial adequacy, with combined term and cash value coverage showing the strongest association, followed by term-only policies. Cash value-only policies had weaker associations with adequacy. Subjective financial knowledge and use of financial professionals increased the odds of net financial asset adequacy, while objective financial knowledge wasn’t significantly associated with adequacy measures for working adults. For retired households, however, objective financial knowledge did significantly increase the odds of financial asset and net worth adequacy. Demographic factors like age, gender, race, self-employment status, and number of children also influenced adequacy measures, revealing socioeconomic disparities in financial preparedness.
Limitations
The researchers acknowledged several important limitations. First, the cross-sectional nature of the data prevented analysis of changes in life insurance demand over time. Second, they couldn’t account for the role of Social Security survivor benefits, which might serve as alternative resources to life insurance or household wealth. Third, the Survey of Consumer Finances collects life insurance data at the household level rather than for individual household members, making it impossible to know which specific household members were insured and for how much. Fourth, their methodology doesn’t apply to those living on non-wage income, for whom a needs-based approach might be more appropriate. Finally, the analysis assumes the status quo for surviving spouses—that they don’t remarry or change their labor force participation—which might not reflect real-world outcomes following an income earner’s death.
Funding and Disclosures
The authors declared no conflicts of interest in conducting this research. The study appears to be an independent academic investigation without external funding specifically mentioned in the paper. The research was published as an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License, making it freely available for non-commercial use provided proper citation.
Publication Information
The study “Life Insurance Product Type, Financial Knowledge, and Financial Adequacy” was published in Financial Planning Review in 2025 (Volume 8, Issue 1, Article e70000). The research was conducted by Youngwon Nam, Eric Olsen, Cäzilia Loibl, and Robert Scharff from the Department of Human Sciences at The Ohio State University. The article is available as an open access publication, making it freely accessible to readers worldwide.
