From the October 2010 issue of Investment Advisor • Subscribe!

Life Sales Up, but Ownership Overall Down

Sales of insurance are recovering, but many still are without policies

According to the recent "U.S. Individual Life Insurance Sales Survey" by LIMRA, sales of individual life insurance improved for the second consecutive quarter of 2010, clocking in at 7%, with a 9% increase for the first half of the year. This is promising, according to Ashley Durham, senior analyst, LIMRA product research. "Keep in mind," said Durham in a statement, "that's compared to the first half of 2009, which experienced the steepest six-month drop in individual life insurance sales in almost 70 years."

But the issue of whether to buy or not is still a major decision for many. Not only has life insurance been in a slump the likes of which have not been seen in nearly four score years, but, according to another LIMRA study, "Trends in Life Insurance Ownership," ownership of individual life insurance policies is at its lowest in 50 years. This study, conducted every six years, found that 30% of households have no insurance at all, up from 22% in 2004.

Households with children under 18 with no insurance stand at 11 million. Four in 10 of those families say they'd be in immediate financial trouble if their breadwinner died. Three more estimate that they'd only be able to get by for several months before running into problems meeting their bills.

LIMRA also found that one in four people rely on life insurance coverage at work, with 15% reporting loss of that coverage due to one or more job losses in the household. Moreover, says Bob Kerzner, president and CEO of LIMRA, the organization's studies show that one reason people fail to purchase insurance, aside from the obvious reasons of having more immediate needs, or less disposable income, is that they aren't sure how much or what kind to buy; they are afflicted with "analysis paralysis" and end up doing nothing at all. "What our studies indicate above all," he says, "is that in financial decisions, whether life insurance or investing, if people aren't certain of what exactly is the right answer, they will do nothing. ...That's where the advisor could in fact make a huge difference, by providing some of that direction. Our studies still indicate 60% of Americans want face-to-face help in these kinds of decisions."

Another option that is becoming more prominent during the recession is the option to convert a level term policy to whole life. This allows the policyholder to have some insurance--cheaper term coverage--while keeping the option of being able to exchange it for whole life coverage before the end of the term, or by a certain age of the insured, or for a specified number of years' duration of the term policy.

However, LIMRA's last "Persistency Report," with data gathered in 2001, showed that only 1% of such policies were converted. As people age, if they've been carrying a term policy for a while, it's an area advisors might want to explore with their clients lest they find themselves left without coverage if the term expires and they are unable to buy more.

Kerzner also points out that many advisors have been telling their clients they no longer need life insurance once they hit age 65. "I think today this is flawed," he says. Because of longevity issues, life insurance, he says, is still a good idea. "We did a study and asked retirees what was most liable to upset the [retirement] applecart and they rated healthcare number one, inflation number two, volatility number three, and longevity a distant fourth. We asked the same question of advisors; they took longevity as number one."

Pointing out all the statistics that show that most people do not have enough money set aside for retirement, Kerzner wonders what will become of the surviving spouse if one spouse's ill health eats up what savings they have, or one simply lives long enough to exhaust their reserves. He also points out that 55% of pre-retirees have less than $100,000 in household investable assets, and nearly 80% of retirees have debt of more than $100,000. With longevity increasing, he says, "I believe the need for life insurance is that, at the first death [of a married partner], an infusion of cash will now be what gets the survivor through retirement. It's tied to longevity. Longer life means the [survivor] is more liable to run out of cash."

While solutions may be challenging, the issues of how much coverage to buy and how and when to buy it won't be going away any time soon.

Marlene Y. Satter can be reached at msatter@sbmedia.com.

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