Consumer Interest In Life Insurance Is Growing, LIMRA Finds

By Trevor Thomas

A 30-year decline in household ownership of individual life insurance policies appears to have ended, according to LIMRA International, Windsor, Conn.

A new LIMRA study found that 50% of U.S. households owned some individual life insurance, the same level as the last time it surveyed consumers on the topic, in 1998.

LIMRA also found that 44% of U.S. households believe they need more life insurance, and 27% actually intend to buy policies in the next year.

All told, that adds up to 29 million households planning to buy more life insurance in the coming year, LIMRA calculated.

If everyone who needs coverage actually bought it, the total coverage potential would be $4.8 trillion and would add an extra $9 billion to annual industry revenues, it estimated. That would be almost double the amount of new premium now written.

For producers and carriers, the survey carries an important message, says Robert A. Kerzner, president and CEO of LIMRA.

“First, more are considering [life insurance] than ever,” he says. “They are saying, I know I need it. We know they all wont buy, but its a tremendous opportunity for the industry.”

The survey also offers crucial clues as to why consumers buy life insurance, he notes.

Product guarantees, for instance, are significant. Consumers singled out fixed-premium, guaranteed death benefit and lifetime coverage as the most important policy features.

Asked why they buy life insurance, 66% said replacing lost income in the event of a wage-earners death, while 42% cited covering burial costs and 33% cited paying off a mortgage.

Of all households, 45% agreed that life insurance is the best family financial protection against premature death of a primary wage earner.

The survey also found that 28% of households have no life insurance at all.

Households that plan to buy more insurance in the next 12 months currently have enough to replace only 3.7 years of income. LIMRA estimated average households need 6.1 years of income replacement, or an additional $163,000 of insurance.

Paul Graham, vice president and chief actuary of the American Council of Life Insurers, Washington, notes many insurers recommend even higher levels of wage replacement for most households.

“In a low interest rate environment like now, it should be 10 times salary,” he says.

Participants gave a number of reasons for not buying more life insurance: cost (74%), difficulty deciding how much to buy (52%), procrastination (50%), worry about making the wrong decision (43%) and a preference for other financial products (40%). (Most cited more than one reason.)

Kerzner notes that 78% of survey participants dont have a personal insurance agent, while 73% dont have a personal financial advisor or planner.

The lessons for producers and carriers: more education is needed.

“Nonbuyers think they cant afford life insurance,” Kerzner says. “But nobody has explained to them what it costs.”

As for procrastination, its the agents job to get past that, Kerzner notes. In fact, the survey seems to show theres plenty of work all around for the industry.

“We need more career agents making more calls, more often,” Kerzner says. “And they need to talk to financial advisors and leverage them by asking them to talk to their clients about risk products like life insurance, disability and long term care.”

Phil Harriman, a member of the executive committee of the Million Dollar Round Table, Park Ridge, Ill., says the study is a reminder that life insurance remains an unmet financial need for many consumers.

“Its perhaps easier to talk to people about investing money or saving for college,” he says. “But there is still a significant part of the public who wants to talk about what happens if they dont live long enough to take care of their families.”

Producers need to raise the subject of life insurance when they meet with clients and prospects, he says.

“This report is telling us people are looking for a peace of mind that is missing in their affairs,” says Harriman, a partner with Lebel & Harriman LLP, Falmouth, Maine.

The terrible events of 9-11, last years tsunami and terrorism in general are major reasons for the surge of interest in life insurance, experts say.

“They remind us all that things can change in the blink of an eye,” Harriman says. “And the roller coaster results of the financial markets also have shown people theres no guarantee in life.”

“Its good to hear the American public is beginning to understand,” ACLIs Graham adds. “Its a well-known fact that Americans are underinsured and havent saved as well as they should. If we can get the message out that life insurance is a critical factor that all Americans should be thinking about, the better off we are.”


Reproduced from National Underwriter Edition, April 15, 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.