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The old rules for how much coverage you need may no longer apply.

Life insurance – it’s not exactly a riveting topic for conversation. In fact, it probably sat on the back burner of your life for years. No reason to pay attention if you don’t need it, right?

Then life changed. You settled down and started a family, and that seemingly dull conversation about life insurance suddenly took center stage. If something happens to you, it’s important to make sure your family is taken care of. So you purchased a policy – maybe one for you and your spouse – and then went on about your business.

But, wait. How confident are you that you and your spouse are adequately insured? Could you be a victim of the male-female life insurance gap? In 2019, Haven Life, a term life sales arm of Massachusetts Mutual Life Insurance Company, conducted an online survey and discovered that men typically have more life insurance than women – a lot more, even when adjusting for salary differences. The result is a gap in coverage that could shortchange the very thing you’re trying to protect.

A closer look

The Haven study revealed that both male and female respondents believed their death would have a substantial impact on the family’s quality of life. But women were less likely to have life insurance (67% compared to 79% for men). And even when they had coverage, it was only about half as much as their male counterpart.

Specifically, male participants had an average annual income of $72,482 and an average of $423,102 in life insurance compared to female participants with an annual average income of $52,484 and $231,342 in life insurance. Men with life insurance placed a financial value on their lives that was nearly two times more than women. While men typically have a higher salary, they also insure it to a greater degree. The male participants had about $5.80 in life insurance per dollar of annual income, compared to $4.40 for the females.

Haven also discovered a gap in the amount of life insurance coverage that uninsured men and women thought they should have, with uninsured fathers saying they eventually planned to purchase $355,348 in coverage versus mothers who said they would buy an average of $175,423.

Beyond the income

Maybe you’re not surprised, given the well-documented income gender gap in society. After all, the formula for how much life insurance to buy has traditionally been based on income, usually 5 to 10 times your salary. Women still earn less than men on average, and they are more likely to be caregivers for children or elderly parents. So based on income alone, women would need less coverage than men.

Except it’s not all about income. Consider a couple where one parent stays home with the kids. That parent may not receive a paycheck, but his or her role has considerable value. If that parent passed away suddenly, who would drive the kids to school? Clean the house? Cook the meals? Mow the lawn? Those are big shoes to fill. In fact, Salary.com estimated the value of the work of a stay-at-home parent and arrived at an annual salary of $178,201.

It’s important not to undervalue a stay-at-home parent’s contribution to the family – even if that person isn’t a W-2 breadwinner – and insure accordingly.

More reasons to close the gap

Turns out, life insurance is about more than replacing lost income and paying for your arrangements if you pass away. That’s why couples who view life insurance as a way to protect their shared vision come out ahead. With that in mind, here are a few more things life insurance can do for you:

Pay off debt and save money. In addition to a mortgage, you may have taken out a loan to start a business. Life insurance could pay off that debt, and it could also help with future obligations, like college education, which could be a lot for a surviving spouse to handle alone. Or, if you need to save money – and who doesn’t – permanent life insurance policies have a cash value that grows income tax-free.

Pass on your business. If you own a business and want to leave it to your child or someone else who’s been working alongside you, a one-way buy-sell agreement makes that possible. The agreement is financed using a life insurance policy that person purchases on you. When you pass away, he or she collects the proceeds on the policy and uses the money to purchase the business from your surviving spouse or estate.

Maximize your IRA inheritance. When your heir inherits the funds in your traditional IRA, that money will become taxable income, which means it could bump your heir into a higher tax bracket. He or she might have to sell some of the assets to pay the tax bill. You may be able to avoid the problem altogether by using the required minimum distributions from your IRA to pay for a permanent life insurance policy that is equal to the income tax that will be due on your IRA. The death benefit is tax free, so it’s a great way to ensure your heir will get the full value of your bequest.

Next steps

Is it time to re-evaluate your life insurance? Start by:

• Re-thinking how you value the roles in your family
• Viewing life insurance as a shared vision
• Putting life insurance to work in other areas of your life

Sources: havenlife.com; thinkadvisor.com; forbes.com; prnewswire.com; fa-mag. com; thefreelibrary.com

These policies have exclusions and/or limitations. The cost and availability of life insurance depend on factors such as age, health and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition if a policy is surrendered prematurely, there may be surrender charges and income tax implications. Guarantees are based on the claims paying ability of the insurance company.