Poll: Life insurance first to go in hard times

By Emmet Pierce Posted : 03/22/2011

Life insurance pollWhen asked where they would be most likely to cut insurance coverage during difficult economic times, a large share of MSN Money readers said they would choose their life insurance policies.

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In a recent joint poll for MSN Money and Insurance.com that drew 10,391 responses, people were asked which type of insurance they would be most willing to trim to make ends meet. Responses were as follows:

  • Life insurance: 39 percent
  • Auto insurance: 13 percent
  • Health innsurance: 6 percent
  • Home insurance: 5 percent

Meanwhile, 37 percent said they would not cut back on any type of insurance coverage in a financial crisis.

The survey results are not scientific. Readers may vote as often as they like and results are gathered from their reponses.

Why choose life insurance?

Kelley C. Long, a financial life coach based in Chicago, said choosing life insurance as a place to temporarily cut expenses makes sense for most consumers.

"Obviously it depends on your situation, but that would be the first place I would look," she says.

Long recommends asking your insurer if there is a way to lower your life insurance premiums without dropping your policy altogether. Insurance companies base prices on perceived risk. If you drop a policy and later develop health problems, you may have difficulty in renewing at a comparable cost, she cautions.

"You never know what it will take to get it back," she says.

Chris Kissell, senior managing editor of Insurance.com, said some consumers are gambling that they will be able to drop life policies and reacquire them before they die.

"My guess is that is the one insurance they hope never to collect," he says. Although death comes to everyone, "they are rolling the dice and figuring it will happen later on."

It won't happen to me

Automobile liability coverage is required in virtually all states. Those who cut back on auto insurance or drop their policies altogether may fail to realize how dangerous driving can be.

"People wrongly think that an auto accident is something within their control, 'I am a great driver and if I drive carefully I am fine,'" Kissell says.

Cristian deRitis, a director of credit analytics for Moody's Analytics, says it makes sense to re-examine health insurance needs when money is tight. Some policies offer premium savings through higher patient co-pays or by limiting treatment to health maintenance organization (HMO) networks.

"I am not surprised that people would save cash by opting for more catastrophic coverage or an HMO," he says.

Whatever you do, don't try to live without health insurance coverage, experts say. One serious illness easily could wipe out a middle-wage household's savings.

Long says it was logical that few of those who took the reader poll decided to reduce home insurance coverage. For most people, a home represents their largest investment.

"If you have a mortgage you need homeowner's insurance," she says.

It is understandable that 37 percent of those polled elected not to cut back on any type of insurance coverage during hard times, says deRitis. After seeing friends and neighbors lose their jobs in the recession, many Americans have a heightened awareness of the uncertainty of life.

To them, policies they can fall back on for home, auto, health and life insurance needs are important lifelines, he says.

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