Although the “average” individual life insurance buyer may not change dramatically from year-to-year, there are many influences that affect who is buying, what they are buying and how much they are buying.
Current influences include the purchaser’s stage of life, product introductions (such as return of premium term and secondary guarantee universal life) and investors’ renewed and increased interest in life settlements.
All of these made an interesting impact on buyer demographics in 2005. What trends emerged?
Male/female buyers: The majority of individual life sold in a given year is sold to men. In 2005, males purchased 54% of the life policies sold to adults (a number that has not changed significantly since 2003). Men also purchase larger sized individual life insurance policies than women. Both genders increased their average policy size by approximately 25%, but coverage amount for women is still 40% lower than average coverage purchased by adult males.
Still, women may be catching up. With the exception of buyers over age 64, coverage amounts for adult women of younger age groups are consistently closer to the amounts purchased by their male counterparts.
A contributing factor is the increased amount of women in the workforce. In fact, in 2005 there were 1.4 million more women working in the United States than in 2003. In addition, women in older age groups increased their average coverage at a higher rate than did their male counterparts.
Seniors: Seniors are a group that has generated a lot of interest over the last few years in terms of the life settlement market and guaranteed death benefit UL products, both of which are targeted at this age group. While it is too soon to see the impact of life settlements on buyer demographics, there are some changes in the senior market that should be noted:
o While seniors purchased only 11% of total individual life policies sold in 2005, more than 20% of policyholders purchasing ULs were 55 or older (up from 12% in 2003). Furthermore, these older buyers accounted for two-thirds of single premium ULs sold in 2005. Policyholders likely have additional cash available to them at this age as they often make higher incomes, have paid off debt and are no longer likely to be raising children.
o Seniors, a group inclined to reduce financial risks, are also more likely to purchase ULs with long-term secondary death benefit guarantees. In fact, over 33% of those buying guaranteed ULs were over age 54, compared to less than 20% for other types of UL.
o About one-third of life policies bought by consumers age 65+ and one-quarter of sales in the age 55-64 market were whole life. The WLs tend to be significantly smaller than ULs that seniors buy. In fact, on average, over 50% of older adults buying WL had an average policy size of $10,000 or less (likely final expense coverage).
Term insurance: This is the most popular life coverage among buyers age 25-54. Permanent insurance is very affordable for the youngest adults, and the majority of young adult buyers purchase some form of permanent coverage. With age, however, the cost goes up and buyers have increasing demands on their cash flow; this makes term insurance more attractive.
Hence, term’s share of policies purchased increases with age until buyers reach 44. After that, term’s market share starts to drop as older age groups tend to concentrate more on permanent insurance.
While 20-year term remains most popular, more term buyers are choosing 15-and 30-year payment periods. Fourteen percent of people purchasing term in 2005 bought 30-year products, up from 9% in 2003. Return-of-premium term products have likely played a part in these trends.
Overall, the gap between the average size policy issued to males and females may continue to close as the U.S. Department of Labor estimates that women will account for 51% of the increase in the labor force between 2004 and 2014. The gap between male and female salaries is also closing slowly; hence, women will need greater coverage amounts for income protection.
Life settlements will continue to impact the buyer demographics in the near future. With company efforts and potential regulation underway, however, the impact will likely lessen.
According to a recent LIMRA survey, three-quarters of participating companies have discouraged or prohibited their agents from engaging in life settlement transactions. Some are taking other steps, such as increasing prices for older buyers.
The trend of larger policies for buyers as a whole may also continue. The term market continues to be highly competitive, despite the declining availability of reinsurance. Furthermore, some companies have continued to do extremely well in the long-term secondary guarantee market, despite recent changes to reserve regulations.
In the end, buyers with less cash in their pockets will be able to buy larger term policies, while older and more affluent buyers will continue to have the opportunity to buy larger ULs with stronger guarantees.
Karen Terry is manager-product research at LIMRA International, Windsor, Conn. Her e-mail address is firstname.lastname@example.org