The American Way: Attitudes About Planning Our Financial Future; Prudential Consumer Survey Finds Americans Lack Basic Financial Information.

NEWARK, N.J.--(BUSINESS WIRE)--Dec. 14, 1999--

Results of a consumer survey recently completed by Prudential that measured attitudes about financial planning and security found that while most Americans know they must prepare for their financial futures, they lack the information necessary to make informed decisions about financial planning.

According to the study, half the people surveyed found it difficult to determine how much to put aside as "emergency funds," fewer than half have either life insurance or a group of diversified investments and only one-third have a written financial plan. A full two-thirds said it was difficult to figure out how much to put aside for retirement planning.

"The survey demonstrates the extent to which people have a difficult time understanding financial issues and making financial and insurance decisions," said John Scicutella, CEO of Prudential's Individual Financial Services. "This problem is magnified by the number of Americans who rely on financial advice from well-meaning but untrained friends or family members.

"While many Americans use professional financial advisors, there is still a significant population that relies heavily on people who don't have appropriate credentials to provide this kind of information," Scicutella said.

Relying on the advice of non-professionals may result in a poor understanding of certain types of life insurance products, most notably variable and universal life contracts, Scicutella said. Thirty-eight percent of the people surveyed admitted they have never heard of these types of insurance policies, and while a larger percentage were familiar with the names "universal" and "variable," they were unable to describe the ways in which they work. Higher percentages of respondents indicated they had some understanding of whole and term life insurance products.

The survey also revealed that most Americans rely on short-term financial planning, and that saving for their retirement is secondary to spending money on consumer goods. "People place a higher priority on purchasing consumer goods than on obtaining life insurance coverage," Scicutella noted. "More than one-third of all Americans feel they have less life insurance coverage than they really need, but out of this group, fifty percent said they have more than they really need of at least one consumer good item, including things as diverse as clothing, radios and TVs, kitchen appliances and magazine subscriptions."

Contrary to the popular marketing slogan, "buy term insurance and invest the difference," relatively few Americans buy term insurance instead of permanent insurance in order to have more money available for other investments. The survey revealed that nearly one third of all Americans report having purchased individual term life insurance. Among them, nearly one third of those who had purchased individual term life insurance indicated they had planned to invest the money saved by not buying a more expensive permanent life policy. However, only around a third of those who intended to invest the difference actually did so every year. One in four of those never invested any significant amount of the money.

A well educated consumer is in the best position to plan a strong and secure financial future. According to Kevin Frawley, Chief Compliance Officer of Prudential's Individual Financial Services, "Consumers should seek professional advice and follow three basic principles:

1) Understand and communicate your financial needs and goals to a

qualified financial services professional.

2) Determine your level of tolerance for investment risk.

3) Calculate what you can afford to set aside to meet your insurance

needs and investment goals."

Prudential, with $375 billion in total assets managed and administered at year-end 1998, is the largest life insurance company in the United States and one of the largest diversified financial institutions in the world. Prudential has a global presence in 30 countries, providing a variety of products and services in the areas of insurance, investments, securities, and real estate to more than 30 million customers.

Common Insurance Definitions

Life Insurance

An insurance policy under which a sum of money is paid if the insured dies while the policy is in effect.

Whole Life Insurance

Traditional whole life insurance provides permanent insurance protection as long as premiums are paid when due. These policies also provide you with the opportunity to build cash values in the amounts provided by the contract. And, these policies may also provide for dividends that may also increase your cash value or death benefit, however, dividends are not guaranteed.

Term Insurance

Life insurance under which the benefit is payable only if the insured dies during a specified period of time. No benefit is payable if the insured survives to the end of the term, and this insurance generally does generate cash values.

Variable Life Insurance

Variable life insurance is the life insurance under which the cash surrender value fluctuates depending upon the investments purchased by a portion of the policy premiums.

Waiver of Premium Benefit

A supplementary benefit that a policy owner can add to his/her policy which provides the insurer waived its right to collect the policy's premiums if the insured becomes disabled, as defined in the waiver of premium contract.

Accelerated Death Benefit

This is a supplementary benefit that allows a policy owner to obtain a reduced death benefit prior to the death of the insured under certain circumstances provided in the policy such as terminal illness.

Universal Life

Universal life is a flexible premium permanent life insurance policy under which a fund is established for regular or intermittent premium payments. The insurer credits interest to this "contract fund" and also deducts the costs of insurance and other administrative expenses from it, as set forth in the contract.

Supplementary Benefits

These are additional features which can enhance an insurance policy by providing additional contractual benefits. Some may increase the death benefit payable, insure other lives or provide other benefits or options to the policy owner.

Property and Casualty Insurance

Insurance designed to protect policyholders from serious financial losses that can be caused by bodily injury to themselves, their family and others--as well as damage to their property and that of others--and lawsuits.

Auto Insurance

Insurance covering the loss or damage to a policyowner's automobile or person, and losses incurred due to legal liability for injury and damage to others caused by an accident arising out of the operation or ownership of an automobile.

Annuity

Contract sold by insurance companies that provides for accumulation of assets during the accumulation phase and provides periodic payments under contractual provisions until death or for a specified time period during the income phase. Annuities can be purchased with fixed rate and/or variable investment options and may yield fixed (under a fixed annuity contract) or variable (under a variable annuity contract) period payments. Annuities can be purchased on both an individual and group basis.

Variable Annuity

An annuity contract offering choice among a range of investment options that will fluctuate in value during the accumulation phase and, in the case of a variable annuity providing for a variable payout, during the income phase. The fluctuation is related to the performance of the underlying investment options selected. A variable annuity is designed for people willing to take more risk with their money in exchange for greater growth potential.

Mutual Fund

A mutual fund pools the money of investors. It sells its shares to the public and invests the proceeds of the sale of shares in a portfolio of securities designed to meet a particular investment objective.