Study Finds Mass Affluent Need More Life Insurance
Most consumers in the mass affluent market are underinsured, according to a study by AIG American General, Houston.
It found that 35% of consumers in the mass affluent group relied on term insurance to protect their families and assets. The average policy carried a face value of about $250,000.
Of those carrying insurance, 36% had term life policies with less than $500,000 in coverage, while 12% had between $500,000 and $1 million in term.
In addition, 27% had whole life policies of less than $500,000, while another 10% had whole life coverage between $500,000 and $1 million.
Some 15% had universal life policies with coverage of under $500,000, while only 4% had UL polices covering $500,000 to $1 million, and 2% had more than $1 million of such coverage.
For the study, AIG AG defined the mass affluent market as consumers with investable assets of between $100,000 and $1 million.
Wealthy Americans heavy reliance on term policies with low face amounts suggests they are making widespread use of group policies available through their employment, observes Tim White, vice president of business development for AIG American Generals Independent Advisor Network.
“Consumers at this income level are putting too much weight on group life insurance,” White says. “The problem with that is, its not portable.”
Moreover, the level of coverage found in the study is relatively puny compared to the industrys rule of thumb that family breadwinners should have coverage of not less than 10 times their annual income.
“In reality, it should be 15 times annual earnings if not more,” White says.
For independent insurance advisors, the good news emerging from the study is that the mass affluent market represents a tremendous opportunity for additional life insurance sales.
AIG AG points to a 2002 LIMRA study that found 10% of U.S. households fit the definition of mass affluent yet control 70% of Americans total assets.
The company also notes industry estimates that the size of the mass affluent market ranges from around 8 million to 16 million households.
Over a third of those households lack any formal written financial plan, the survey found.
Some 40% had a professionally prepared, written financial strategy to guide their families in the event they passed away, and another 22% had a formal written plan they had prepared themselves. But 28% had only an informal plan, while 10% had no plan at all.
White believes the findings suggest deep opportunities for life insurance producers.
“Producers need to work harder to get in touch with these people,” he says. “We need to use our skills to provide better protection and financial planning for affluent consumers and small businesses.”
The business is out there, he says, noting that the survey found almost 40% of the mass affluent look to financial planners and advisors and to insurance producers for advice.
“The fact that so many said they would prefer to talk to financial or life insurance advisors tells us this market is ripe,” says White.
Step one is to counsel the wealthy consumer on how much life insurance coverage to buy. Using the clients own income as a benchmark, ask him or her how long it would take for a spouse to run through the insurance money, White suggests.
“Always talk about their personally held insurance, not group policies, because your current group policy is not necessarily always going with you when you leave your job,” he says.
For financial advisors, he notes, a salient finding of the survey was the degree of investment risk that mass affluent clients are willing to take.
Only 11% of those surveyed said they were unwilling to accept any risk when investing, according to the survey. A total of 85% said they were willing to take a slight to a moderate degree of risk, while about 4% said they would accept a high risk for a chance at getting the highest return.
The understanding of investment risk by mass affluent clients makes them good candidates for products that offer a chance at a strong return, such as indexed and variable universal life, White says.
“The most relevant piece of advice to advisors on reaching the mass affluent market is to establish a marketing plan and to work your plan,” he says. “It is still an industry thats driven by seeing clients and asking for referrals.”
There are still too many advisors who approach their job without a plan, he says.
“Do the best work you can for your clients and constantly be on point looking for more clients. To have access to the mass affluent, you must be out there to make contact on a consistent basis.”
Other information about mass affluents uncovered by the survey:
–20% own businesses.
–75% have children.
–38% are willing to cut personal spending by up to 10% to ensure an adequate nest egg when they retire, while 27% are willing to scale back by 20%.
The survey covered 337 individuals and was conducted in September 2004 by AccuData America, a unit of the Primus Company, Chicago.
Only 2 of the 337 had no life insurance at all.
Reproduced from National Underwriter Edition, January 6, 2005. Copyright 2005 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.