Life insurance provides a benefit, typically a one-time payout, at the time of death of the insured person. As such, it could be called death assurance. This FRED Blog post seeks to determine the scope of such insurance in the US.
One thing we could look at is the total amount of promised benefits. But imagine if all the promised benefits of all the life insurance policies had to be paid out immediately. How much life insurance companies could pay would be limited by the assets they hold. So that is what our FRED graph above shows. It’s a big number that’s been growing over time, but it’s not a complete picture of what we’re trying to find out.
In our second FRED graph, above, we represent those same life insurance company assets, but this time as a percentage of total yearly US personal income.
We can see that life insurance assets hit a low point in the early 1980s, at 19% of total yearly US personal income; a high point right after the pandemic, at 48%; and it seems to have now settled around 41%. This means that the life insurance industry would now be able to provide the equivalent of a little less than five months of income if everyone had an insurance policy.
Given about 51% of Americans have life insurance, that would amount to an average of about ten months of income as benefits to the insured.
How these graphs were created: Search FRED for “life insurance assets.” The first choice should be our first graph. For the second graph, click on “Edit Graph”; search for “personal income”; take the nominal series, not the real one; apply the formula a/b/10 to get percentages, given the units. Note that this ratio is not perfect, as we divide a series that is not seasonally adjusted by one that is. For looking at longer trends, this is sufficient.
Addendum: Today, our editor George Fortier is celebrating 25 years at the Federal Reserve Bank of St. Louis. He is the one who is giving this blog its special je ne sais quoi while getting credit for very few blog posts. A big thank you for your dedication, and we are looking forward to many more posts.
Suggested by Christian Zimmermann.