How shifting US household dynamics are redefining life insurance

Life insurance, once a staple of financial planning for American households, is undergoing a quiet transformation, only half of US households have life insurance compared to three quarters 20 years ago. As life stages shift and household dynamics evolve, consumer sentiment towards life insurance has changed significantly since the start of the millennium. This has profound implications for the life insurance industry in the United States, presenting both challenges and opportunities for life insurance providers seeking to remain relevant and grow in a rapidly changing market.

Shifting life stages and their impact on insurance needs

Traditionally, key life events such as marriage, having children, or purchasing a home acted as natural triggers for buying life insurance. However, these milestones now happen later in life. The average age of a first-time buyer has steadily risen, as have marriage and first-time parenthood. As a result, households are delaying financial decisions that typically include life insurance.

Moreover, the very makeup of households has shifted. Gender roles that once designated a single breadwinner are less common, with dual-income households now being the norm. Data shows that on average the primary earner in a multi-head household contributed 67% of the household’s income in 2022, compared to 73% in 2012. This increase in shared financial responsibility has reduced the perceived urgency of life insurance, as families increasingly rely on two incomes, providing a built-in financial safety net. However, the reality remains that losing one income, even in a dual-income household, can lead to financial instability – a fact that life insurers must work harder to communicate.

The gig economy’s ripple effect

According to the Freelance Forward Economist Report, more than a third of workers in the United States are part of the gig economy – whether as full-time freelancers, side hustlers, or independent contractors.

The rise of the gig economy has further disrupted traditional life insurance models. More Americans are forgoing conventional employment in favor of freelancing or entrepreneurial ventures, which often lack employer-provided benefits like group life insurance. Additionally, even those in traditional employment are experiencing a steady reduction in benefits, compounding the gap in life insurance coverage.

For many households, this shift represents a loss of accessibility and affordability. While individual policies remain available, the convenience and cost-effectiveness of employer-sponsored plans are difficult to replicate. Life insurers must find innovative ways to reach these workers, offering flexible solutions that cater to the unique needs of gig workers.

Households in the gig economy not only forgo access to employer-provided life insurance but also lose group health and health-related insurance benefits. This shift is evident in the data, which shows a significant rise in individual health and supplemental health-related insurance ownership – increasing from 19% each in 2012 to 34% and 33% respectively in 2022. As households navigate their insurance budgets, they may prioritize immediate needs like homeowner’s, auto, and health insurance over life insurance, explaining why a similar increase in individual life insurance ownership has not been seen.

Changing perceptions and declining uptake

Interestingly, while affordability is often assumed to be the primary barrier to life insurance adoption, recent data suggests otherwise. Interestingly, fewer households now cite cost as the main barrier to life insurance adoption. Instead, many consumers express a lack of perceived need, with some indicating they haven’t yet thought about life insurance or were never contacted about it.

This reflects broader societal changes: delayed life events mean that households don’t consider life insurance until later, if at all. Additionally, the traditional nuclear family model, which once formed the backbone of the life insurance market, is becoming less prevalent. Life insurers face the challenge of demonstrating the relevance of life insurance to a broader spectrum of households, including single individuals, unmarried couples, and child-free families.

Bridging the gap: opportunities for insurers

Despite these challenges, the perceived value of life insurance remains strong among many households.  Data shows that 49% of households agree there are no better financial products than life insurance for saving or investing, steadily increasing from 29% in 2002 and 37% in 2012.

The key for insurers lies in demonstrating the continued relevance of life insurance to all households, regardless of its structure, and shifting strategies to meet evolving consumer needs and expectations.

1. Targeted communication: Tailored messaging that speaks to diverse household structures and life stages is essential. Younger generations, who prefer digital communication, represent a significant opportunity for growth. Insurers must invest in digital platforms to connect with these consumers effectively.
2. Flexible products: Offering products that align with the varying needs of gig workers and nontraditional households can help bridge the gap left by the decline of group life insurance. Simplified underwriting processes and customizable coverage plans can appeal to those seeking convenience and affordability.
3. Educational outreach: Many consumers delay purchasing life insurance simply because they lack awareness. Insurers can benefit from proactive educational campaigns that explain the benefits of life insurance, emphasizing its relevance regardless of household structure.
4. Building trust and loyalty: Trust remains a cornerstone of the insurance industry. Providing transparent policies, competitive pricing, and personalized customer service can help insurers foster long-term relationships with their clients. This will also help reinforce relationships with clients whose children are beginning to leave home – data shows that 10% of households do not own life insurance for this exact reason.

Adapting to a digital-first world

The rise of online interactions, especially among younger consumers, highlights the importance of digital engagement. Data shows that 90% of consumers under 40 interact with their insurance providers via digital channels, compared to just 72% of consumers 40 years or older. While traditional communication methods like phone and mail still resonate with older generations, the industry’s future will be shaped by the ability to offer seamless online experiences. Insurers must invest in user-friendly websites, mobile apps, and digital marketing to remain competitive.

Life insurance in the US is at a crossroads

Shifting life stages, evolving household dynamics, and the rise of the gig economy have all contributed to a decline in traditional coverage models. However, these changes also present opportunities for innovation. Addressing the unique needs of the modern household, life insurers can revitalize the market and ensure their relevance for the next generation. Adaptability will determine success. Life insurers must rise to the challenge, proving their value to households in ways that resonate with today’s consumers and more closely align with their shifting needs and household dynamics.