In today’s tight pricing environment of shrinking margins and reinsurance consolidation, “commoditization” of life insurance products is continuing unabated. This trend first showed up in the term insurance marketplace, only to be followed in the universal life market with products utilizing secondary guarantees.

Today, though price continues to be an important part of product competitiveness, a new trend is beginning to emerge. It involves achieving differentiation in ways other than price alone. Specifically, product manufacturers are creating innovative riders to help bring added value to the client. These riders enable producers to capitalize on the current environment, stand out from the competition, simplify their approaches and make additional sales, all by meeting client objectives in ways previously not possible.

To understand how this is playing out, consider why clients buy life insurance in the first place. Whether it’s to provide for their family at the death of a wage earner or to enhance their legacy planning, most people buy life insurance to fulfill their responsibility to those who depend on them.

In meeting this responsibility, people overwhelmingly agree that income replacement is the foremost reason for buying life insurance, according to the “U.S. Buyers and Non-Buyers of Life Insurance” study by LIMRA International (2004).

Recently, life insurers have begun addressing this through introduction of the kind of innovative riders mentioned above.

These riders are being designed to address the real reasons people buy life insurance–to provide a continuous source of income to replace that previously provided by the decedent. The riders make it easier for clients to understand, and most importantly to act upon, the producer’s recommendations.

One example is a rider that guarantees an income benefit for survivors. This enables the producer to provide clients with a simple, direct solution for income replacement concerns.

Consider how this would impact the producer’s interaction with clients. People generally think about their financial needs in terms of a monthly amount. I’m sure all of your clients can recount their monthly mortgage payment, their monthly phone bill, their monthly car payments and most other monthly expenses.

Discussing life insurance in terms of a monthly survivor income makes it easier for the client to understand how much coverage is needed. When they have a better understanding of this, they will find it easier to accept the advisor’s recommendation. This also makes it easier for them to take action.

From a retirement income perspective, the producer can ask clients, “If I gave you $1 million, would you be able to retire?” Chances are, they would think about it but wouldn’t know for sure if they would run out of money. Now ask, “If I guaranteed you $5,322 a month for the rest of your life, would you be able to retire?” Regardless of whether this particular amount is enough to sustain the anticipated lifestyle, they’ll be much more likely to have an answer. They’ll know whether that amount will meet monthly living expenses.

Furthermore, for many families, the thought of receiving a large cash sum is intimidating. The initial death benefit payment may seem like a lot of money, but it raises several questions for the surviving family. Will they have enough to last their lifetimes? Will they make the right decisions to preserve this nest egg? Will the investment of this sum generate enough income to support the entire family? How will taxes erode that income? Will creditors and solicitors come knocking on the door to get a piece of that nest egg?

By using a rider that provides a guaranteed survivor income benefit, the producer can ensure the recommended insurance will absolutely guarantee a level of income that makes sense for the surviving family. Rather than providing a $1 million death benefit, for example, the producer would be offering an option that enables survivors to receive a guaranteed lifetime income of $5,322 a month.

This approach creates an opportunity for producers to differentiate themselves from the competition. It provides a compelling and direct solution for clients. It also strengthens the recommendations. By specifying a guaranteed survivor income benefit, the recommendation now becomes a matter of fact, not an opinion or an estimate based upon multiple variables and assumptions.

As the client’s representative, the producer gains the comfort of knowing that the survivors are guaranteed to receive the income they expect when they need it most. This better positions the producer to advocate on behalf of those who depend on the client–they’ll be able to see clearly how life insurance can protect them with a lifetime of guaranteed income.

Don M. Roman, JD, is a senior financial planner with MetLife, based in Atlanta. His e-mail address is droman@metlife.com.

In some cases, lump sum payments can lead to questions and insecurity about preserving the survivors’ nest egg.

Questions For Families

o Will the money last a lifetime?

o How can we preserve this nest egg?

o Will this generate enough income to support the entire family?

o Will creditors and solicitors come knocking on the door to get a piece of our family nest egg?

Source: Don M. Roman, MetLife, Atlanta office