TEST YOUR LIFE INSURANCE LITERACY

Hurry while the link is still active.

There’s a quick 10 question multiple choice test of your life insurance literacy. It’s from LIMRA, which does research for life and health insurers. You don’t need to register or provide any personal information. No agent will call.

Click here to test yourself now

[If the link stops working, click on the questions to the right and the answers below]

How did you do? The rest of this post consists of “spoilers”.

Findings

The questions are relatively easy but only 30% of the 4,000 respondents passed. That means 70% failed. Less than 1% got all the questions right. (Yes, you may congratulate me whenever you like.)

When test results are dismal, who really failed? The students or the teachers?

The Top Three

You’ll find the correct answers in the graphic to the right (click on it to enlarge).

People generally understand

1. A life insurer invests the money from buyers to pay claims (68% right | 32% wrong)
2. Group life insurance ends when you leave your job (59% right | 41% wrong); see two types of insurance you cannot own
3. Term life insurance is for temporary needs (52% right | 48% wrong); see buy or lease

People generally didn’t know that

1. Life insurers collect medical information to identify pre-existing conditions when a policy is purchased (18% right | 72% wrong); see the pitfalls of mortgage life insurance, which has post-claims underwriting
2. If a life insurer goes bankrupt, the policies stay in force and the benefits remain (25% right | 75% wrong); see what happens if my life insurer dies?
3. The life insurance death benefit is tax-free (31% right | 69% wrong); see the overlooked advantages of universal life

Odd Design

The way a test is designed influences the results.

Normally, the answer choices put True before False. You’ll find that in the Microsoft Office templates and a Google image search. Penn State explains how to construct a True/False test and gives help in spotting flawed designs.

For some reason, LIMRA puts False before True. Who’s ever heard of a False/True test? Also, questions with negatives are more complicated to answer than direct statements.

For instance, here’s the first question (which 69% got wrong):

Beneficiaries do not have to pay taxes on the death benefit from a life insurance policy: False/True

The following may be clearer:

(1) Beneficiaries pay tax on the death benefit from a life insurance policy. True/False
(2) The death benefit from a life insurance policy is tax-free. True/False
(3) The death benefit from a life insurance policy is taxable. True/False

What do you think?

Next Steps

“With life insurance ownership at an all-time low, it is important that the industry not only overcome consumers’ lack of knowledge about life insurance but address the misinformation that is out there confusing them and possibly having a negative impact on their image of the industry."
— Jennifer Douglas, LIMRA Associate Research Director

The public needs help. Where can they turn? This week’s 2013 Edelman Trust Barometer ranks the financial sector as the least trusted in the world for the third year in a row.

Links

• How to afford the insurance you need
• The four steps in wealth management
• What happens if my insurer dies?
• Americans have rudimentary knowledge about life insurance (LIMRA, Jan 17, 2013)
• What makes a smart insurance customer? (AdvisorOne, Jan 17, 2013)
• LIMRA: 70% fail life insurance IQ test (LifeHealthPro, Jan 18, 2013)
• Edelman survey: financial sector the least-trusted for the third year (Bloomberg, Jan 21, 2013)
• The top posts of 2012, 2011, 2010, 2009, 2008, 2007 | care to subscribe?

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PS How would insurance advisors do on this test?