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.