We recently surveyed 1,000 people as a pulse check on perceptions and attitudes about insurance coverage. The findings are in line with our experience helping people get insurance coverage, and building a digital platform to make that easier, for the past year. Most people have insurance gaps and there are surprising behavioral reasons why. Here's what we've learned, from both our survey and our experience with consumers.
- Most people don't have the right insurance. According to our survey, 50% of people don't think they have the right level of insurance coverage and 7% have no idea if they do. That's a lot of people in the dark about an important financial topic. However, if we could do one-on-one follow-up interviews with the survey respondents, I'd bet that most of the people who think they have the right amount of insurance actually don't. When people run an insurance analysis with us, they're often surprised by the results. Even our financially savvy users learn something new. Commonly, those "a-ha" moments concern disability insurance or gaps in health insurance. One unfortunate real-world example of this is medical bankruptcy. A 2007 Harvard study found that the majority of personal bankruptcies were caused by medical problems. The twist was that most of the people who declared bankruptcy because of medical issues were well-educated homeowners with middle-class occupations. These weren't poor people. Nor were they uninsured: three quarters of them had health insurance.
- Women are less confident about their protection against financial risks. When asked about their level of confidence in their protection against major financial risks, 51% of women were "pretty confident" versus 61% of men. This is probably not surprising, given other research about women's financial attitudes, which suggests that women generally are more risk averse and less confident in their financial knowledge. But that's not necessarily bad news! Other studies have shown that people who self-identify as very financially savvy are actually less knowledgeable about personal finance than those who consider themselves less savvy. (This is the overconfidence effect in action, which affects the accuracy of decision-making). So women may actually have the advantage here in better decision-making.
- Insurance is an out of sight, out of mind financial priority for most people. We asked people to rank a set of four financial priorities from most to least important. Overall, insurance was the lowest ranked priority, behind saving for retirement, paying down debt and sticking to a budget (in that order). Unfortunately, that was not a surprise. Many of the insurance shoppers we've helped only started thinking about insurance after an insurable event had happened. People who just experienced a health issue started thinking about disability insurance. People who just experienced their first thousand-dollar vet bill started thinking about pet insurance. Of course, this makes intuitive sense, as those personal experiences serve as a powerful reminder about risks and the need for insurance (which is the influence of the availability bias, which makes us bad judges of risk). Of course, that can often be too late to get insurance. In the case of disability insurance, for example, any health issues you already have would be excluded as pre-existing conditions. The same goes for pet insurance. Of course, both types of insurance would still provide coverage, but not as comprehensively as if the policy were bought before anything had happened. "I wish I'd done this sooner" is a common sentiment we've heard from clients.
So what are the lessons to take away from these findings?
- Don't be overly confident that you have the right insurance! Even if you're financially savvy, there might be something important you're missing. It's worth the time to get expert advice.
- If you think you might need insurance, don't put it off! Health can take a turn suddenly. And even minor issues could complicate your insurance application, affect the value of your policy, or even render you ineligible for coverage.
- Make insurance part of your regular financial routine. Pick a regular financial activity that you do (doing your taxes would be a good one), and make that the time when you also review your insurance coverage. You can use sites like PolicyGenius, which provides educational guides, advice and quoting tools, to get this done.