Term-Only Insurance Licenses: A Clear And Present Need

To The Editor:

America has never been a one-size-fits-all nation. Our society expresses diversity and serves diverse needs. The free market system we live by is based on diversity–of cultures, of markets and of ideas.[@@]

This essential American principle seems lost on insurance companies that are fighting to block the licensing of salespersons exclusively as term life insurance providers. Their mantra is “all or nothing at all.” According to them, if you’re not qualified to sell a growing array of insurance products, from whole life to complicated annuities, you should not be qualified to sell any insurance whatsoever.

This argument threatens the security of millions of Americans who do not want or cannot afford the complex life insurance products that drive the greatest profits at large financial institutions. Term insurance exists as a solution for these people. Unfortunately, often tragically, the distribution system is flawed because there are fewer and fewer salespeople selling term life insurance in neighborhoods where only term insurance is needed.

The reason for this fact is twofold. First, it’s not nearly as profitable for commissioned sales representatives, who are trained to sell high-premium products, to bother with this market. Second, a potential sales force is discouraged by a license testing process that demands a sophisticated, but irrelevant, knowledge of those high-premium products.

The appalling consequence is that one-third of American families are not insured at all. An additional 40% are covered for amounts equal to or less than only three years of the breadwinner’s annual salary, according to a study by Metropolitan Life Insurance Company. Less than 33% of African-American and Hispanic families in America have any life insurance coverage at all.

With commissions low and licensing criteria illogically high, the pool of agents has diminished sharply.

The solution is to tailor licensing to the market. To qualify new salespeople to sell the only kind of insurance their buyers care about. This approach would foster neighborhood salespeople who know their customers, who are part of their world, and who best understand their needs.

When most people purchase life insurance, they need a live person in their living room to explain the risks of going bare and the benefits of buying a policy. But with no agents serving this population, there is little likelihood that many people who need this coverage will ever think to get it.

Insurers should be allowed to follow the example of the National Association of Securities Dealers, which issues graduated licenses based on the complexity of the products involved. Just as NASD’s Series 6 license limits agents to selling products simpler than those sold under a Series 7 license, a limited line term life insurance license would allow insurance agents to sell only term life insurance and not the more sophisticated investment products.

The consumer benefits clearly outweigh any perceived detriment, especially those voiced by the insurance regulators or the industry segments that oppose the competition this may bring. Regulators will continue to oversee the product and the market behavior of those who sell it, and the agents and companies who oppose the limited license aren’t serving this market segment anyway. In the final analysis, increased term insurance availability means greater financial stability for families coping with the loss of a loved one and thousands of new jobs for able salespeople throughout America.