For Now, Its Guarantees And Flexibility

By

It is said that when times are uncertain, consumers demand flexibility. Presumably, thats because consumers want to be able to move around as the winds change.

You know the drill: “Give me something that works today but also something that I can change or exit if circumstances change.”

But, where insurance products are concerned, one wonders if that old saw is true. And, what does that mean for your marketing efforts?

The prevailing trends in the life insurance and annuity sector over the past three and a half years suggest exactly the oppositethat, in uncertain times, consumers want safety and security.

We have covered this in-depth in National Underwriter, as the recession twisted and turned through the economy.

For example, fixed annuity sales soared. And other forms of guarantees picked up steam, too. The various guaranteed death and income benefits in variable annuities are one example. In universal life insurance, the lifetime death benefit guarantees and the wide assortment of level term premium guarantees won the day. In disability income, term life and long term care, the various return of premium guarantees turned some heads.

But, thats not the end of the story. Another product development not discussed much lately but that has been here for quiet a while, is the use features that allow for “temporariness” in consumers lives.

That is, plenty of products are very “now” oriented. Well look at some examples in a moment. But first, Id like to tell what brought this point home to me.

In speaking with a newly minted college graduate recently, I learned some things about this persons first job and next goals. When the discussion turned to job-related “bennies,” including health insurance, it turns out this graduate had purchased a short-term medical plan to fill the gap from graduation to benefit start-up at the employer. The reason? “The economy is so bad, I wasnt sure Id get a job right away.”

As for savings, my graduate friend has set up a small but carefully structured savings plan. The hallmark of this plan is flexibility–”I can stop and start it or even cash out to pay graduate school, which I plan to do if I can arrange it or if….”

The remaining discussion revealed more of the same ifs, ands, and ors.

As a point of comparison, I explored the subject with some middle-aged people in my community. (After all, my young friend is just starting out in the world of work. One would expect less permanent orientation at this stage.)

The surprising thing is, I found a similar pattern in many older folks, too. Many say they do want safety and guarantees, and they do make some buys with that in mind (the house, the life insurance, etc.). But, they actually are living and planning for “now.”

That is, they are buying many products that will “tide me over” or that are “good enough for now” or that are “okay for the moment.” The reason? They are unsure of how long the economic slump will last, uncertain of their employers future, unclear about whether they can find new work, worried about cuts in Medicare, in doubt about how long their computers operating system will be useful, and on and on.

This was no scientific survey, but the consistency in response was overwhelming. It seems a lot of people have joined the “aint buying no green bananas” crowd.

They want guarantees but they buy flexibility. Actually, they will buy guarantees and flexibility, if they can find it.

Insurance developers are on to this and have been for quite some time. The real trend in design is guarantees and flexibility.

You can see it in the rise in portability, liquidity and changeability of many products. You can see it in some of the consumer-driven health care plan designs. You can see it in rising sales of the worksite-sold products. You can see it in policy features that let people re-enter (term life insurance) or re-up (on fixed annuity periods).

You can even see it in the growing use of stochastic modeling among advisors. (The advisors use this modeling to explore various financial scenarios with clients, injecting what-if flexibility right into the planning process, which also happens to focus on building “future security.”)

You can see it in the language used to promote products. Some recent examples:

A dental plan provides specific coverage but also offers “flexible provisions and multiple price points.”

A UL policy offers “flexible” coverage with a “guaranteed minimum death benefit.”

A UL policy offers a LTC rider, so the owner has death benefits plus the ability to use those benefits to pay for LTC expenses, if needed.

An income annuity offers level payment guarantees, short-term liquidly, one-time withdrawals and an inflation option.

A variable universal life policy offers well over 50 investment options plus loans, withdrawals, death benefit guarantee options and more.

No doubt, you have many more examples to suggest.

The point is, economic uncertainty has fueled consumer demand for financial products that offer both guarantees and flexibility. Products do exist that meet both demands.

A discussion with clients about the demand for guarantees and flexibility might help them–and you–identify appropriate planning strategies. It might also help you set your own marketing strategies for the coming year.


Reproduced from National Underwriter Life & Health/Financial Services Edition, October 24, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.