Why the life insurance gender gap exists and what can be done to close it
Disparities between men and women go far beyond just the pay gap. In fact, there’s even a gender gap for life insurance.
When it comes to life insurance policies, men on average carry almost double the life insurance coverage in comparison to women. The disparity in life insurance coverage for women stems from quite a few issues, including lower wages, a lower value on unpaid labor, and a lack of financial literacy.
While life insurance companies have done a much better job in recent years to address disparities, the life insurance gender gap still exists. So, why does the life insurance gap still exist and what can we do to close it? Let’s talk about it.
Why Does the Life Insurance Gender Gap Exist?
The life insurance gender gap stems from disparities in financial situations and literacy
Just like in the pay gap, the life insurance gender gap exists because of how women have traditionally been viewed and valued. And it doesn’t help that our society still holds outdated views on women.
One of the biggest reasons why the life insurance gender gap exists is because women still earn less money on average compared to men. With lower earnings, women are more likely to have less coverage—if they have any coverage at all. Women are more likely to reduce their full-time jobs to part-time or stop working completely to stay at home and raise children. Because of that, it can make it harder for women to afford life insurance policies in the first place.
And speaking of staying home to raise children, this type of unpaid labor is severely undervalued. While stay-at-home moms don’t make money for the work they do, it is estimated that if we were to give stay-at-home moms a salary, it would be well over $150,000.
Overall, the life insurance gender gap exists in part because of stereotypes and a lack of financial literacy. In general, women are less likely to be viewed as the main “breadwinner” of the family, which can cause bias in how life insurance is both priced and marketed. Women are also on average less financially literate in comparison to men. With a lack of resources, women are more likely to make disadvantageous financial decisions that may hold them back.
How Can We Close the Life Insurance Gender Gap?
Through education and policy change, we can close in on the life insurance gender gap
While the life insurance gender gap has gotten better in recent years, the work to close the gap is far from over. While there is no one solution to solving the issue, there are plenty of solutions that can help.
First and foremost, change can stem from policy changes at the federal and state level. That may look like enacting policies that encourage life insurance companies to create policies that better cater to the needs of women.
Looking at the situation from a workplace standpoint, promoting gender equity can also help close the life insurance gender gap. Whether that be advocating for equal pay, promoting women into leadership roles, or providing better support for working mothers, advocating for workplace equality can help close the pay gap and thus the insurance gap.
Beyond these solutions, one of the most effective ways to help close the life insurance gender gap is increasing financial literacy in women and encouraging women to take more control over their finances. A lack of financial literacy holds women back. When they don’t understand how to properly manage their debt, invest their money, or manage taxes, they are more likely to be penalized and face financial repercussions. This can keep women in a cycle of debt and make it much harder for them to financially excel.
Improving Financial Literacy: Helping Women Navigate Life Insurance
Understanding the elements of life insurance to bridge the gender gap
Because improving financial literacy is one of the best steps we can take to close in on the life insurance gender gap, let’s talk about some important elements regarding life insurance.
Explaining Types of Life Insurance
There are quite a few different types of life insurance to choose from, which can be overwhelming when trying to navigate life insurance. The most popular options generally boil down to term or permanent life insurance.
Term life insurance is a type of policy that covers a policyholder for a certain period of time. Generally, the term of this type of policy will range between 10-30 years. If the policyholder were to pass away during the life insurance term, their beneficiaries would receive a death benefit.
Another form of term life insurance is accelerated term life insurance. Not all companies offer this type of insurance, but it is becoming increasingly more and more popular. In a traditional term life insurance application process, the policyholder would be required to go through a medical exam so that the insurance company can understand their health conditions. With an accelerated term life insurance, applicants can get life insurance coverage with no medical exam. Instead, applicants detail their health history, current health conditions, and their lifestyle and an algorithm determines how much coverage someone can get approved for and how much they may pay. For people who are too busy for a medical exam or maybe even have a fear of the doctor, an accelerated policy may be a good option.
The other most common policy is permanent life insurance. Where a term life insurance policy only covers a policyholder for a certain period of time, a permanent life insurance policy covers the policyholder for their entire life. A term life insurance only carries a death benefit, but a permanent life insurance policy generally has something called a cash value. As the policy grows and the policyholder makes their premium payments, the cash value of that policy grows. Down the line, the policyholder can take a loan out on their policy if they need it.
Because the coverage of a permanent life insurance policy extends over someone’s entire life and it carries more benefits than just the standard death benefit, this type of policy tends to be much more expensive
Explaining Life Insurance Coverage Needs
One element of life insurance that tends to be tricky to understand is how much coverage someone may need. While that will always depend on each person’s own financial situation, there are still a few methods to use to determine how much coverage someone may need.
● 10x rule - This rule encourages people to multiply their yearly income by 10 to determine how much coverage they need. While this may act as a good rule of thumb, it doesn’t necessarily consider debts, family needs, or any other financial obligations. Plus, this does not lend itself to stay-at-home parents who want to get life insurance coverage.
● 10x rule plus $100,000 - This rule encourages people to multiply their yearly income by 10 and add $100,000 per child to that amount to account for college expenses. The same issues that apply to the 10x rule above also apply to this rule.
● DIME rule - This rule encourages people to take a deeper look at their financial situation to consider debt, final expenses, income, mortgage, and expenses to get a more well-rounded coverage amount.
While these are not the only methods to use to determine how much coverage someone may need, they are among the most popular. Other options include working with a financial advisor to understand their financial needs or using life insurance coverage calculators online.
Explaining Life Insurance Premiums
Life insurance premiums are what someone pays monthly for life insurance coverage. The premium for a life insurance policy depends on what type of policy they have and what risk factors are identified by the insurance company.
When someone applies for life insurance, the company will require the applicant to answer a number of questions about themselves in order to determine how much of a risk they pose to the insurance company. Those factors include:
● Age - The younger someone is, the more affordable their policy generally is. Younger people are generally more healthy than their older counterparts, which means they are less of a risk to the life insurance company.
● Health history - A life insurance application may ask for information about an applicant’s family health history. If they are more likely to develop serious medical conditions that are passed through their families, they may pay more for life insurance.
● Current health - Unless you opt to apply for life insurance policies that do not require a medical exam, you will need to undergo a medical exam when applying for life insurance. The life insurance company may want to see your blood pressure, cholesterol, and any other relevant health information.
● Smoking - Applicants who smoke will automatically pay more for life insurance if they are even approved for a policy at all.
● Lifestyle - Life insurance companies want to know about the hobbies and jobs of their applicants to determine whether or not their lifestyle is risky. People who have more dangerous hobbies can expect to pay more for life insurance.
● Driving record - When applying for life insurance, companies typically will look into the applicant’s driving record for at least the last 5 years. Riskier drivers who have a less clean driving record will pay more for life insurance in comparison to those with cleaner driving records.
These factors, coupled with the policy type and coverage amount can change how much someone may expect to pay for life insurance.
Among the disparities women face in comparison to their male counterparts, there’s a clear gender gap for life insurance policies. While it has improved in recent years, the work to close the gap is not done. Policy change and financial literacy are some of the best steps we can take to start bridging that gap and getting women the life insurance coverage they need.
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