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Life Insurance In The New Age Of Self-Reliance

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The new vitality in the staid old life insurance business is encouraging and surprising.

For instance, the new Bragg Associates life insurance market survey drew more responses than ever before. What’s more, the survey findings show some significant product shifts–to simple products such as term insurance, very large amounts, preferred issues and old age issues. This despite the disquieting era of the early 2000s with its economic swings, war and societal change.

Let’s look at some of the trends now impacting the market, as revealed in the survey and shown in Table 1.

Self-Reliance: The “lifetime employment” covenant is gone; self-reliance is in. This suggests group insurance will decline, but individual insurance will thrive. The new upscale self-reliant market is sophisticated; it deserves the industry’s very best efforts, in product and service. The “personally producing general agent” emerges in the survey as a strategy to serve this market. Product-wise, large amount level term insurance is definitely in.

Longer life expectancy: Table 2 deals with this in a very revealing way. Nonsmoking 75-year-old males in 2002 were like 68-year-olds in 1982, like 62-year-olds in 1950 and like 59-year-olds in 1908. This is leading to longer working lives, often in new careers. It certainly has led to an enormous and fully justified increase in the market for older age life insurance.

Not incidentally, three-quarters of the survey respondents indicate that they serve the 75-plus market. Twenty years ago, that market was virtually nonexistent. (Note: The improvement in life expectancy is also evident for females but is not as extensive.)

Great variation in mortality: One cause is improved health care and better lifestyle attitudes among the top socioeconomic groups. The result for the life insurance business is a boom in “preferred” issues. (Again, not incidentally, 90% of survey respondents report they do preferred underwriting and pricing.)

Another result of the great variation in mortality is the surprising emergence in the past few years of the “secondary market” in life insurance. This is not the place to assess the pros and cons of this market or to examine procedures used to justify this phenomenon as an acceptable new plan for the business and its customers. The point here is that the market is growing.

Multiple jobs/multiple breadwinners: One reflection of this trend is that few beneficiary designations are emerging. Estate creation and protection are main drivers. Business insurance is important because of the proliferation of new small business, and charities are more important as beneficiaries due to the drying up of government support and “cradle to grave” security.

Distrust and discontent: These are the most noticeable aspects of the first half of the current decade, across the board. The life insurance business is not exempt. It can cope with the mood by simplifying the product and explaining it better. [This already is happening; the survey shows a marked shift toward term, which is a very simple product.]

New vitality–that is indeed the story for the insurance industry’s venerable product, individual life insurance. Today’s hot buttons are: term at middle ages, very large amounts, preferred issues, older age issues and simplicity.


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