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July 15, 2007 at 04:00 PM
What do customers want to pay for life insurance? Probably, as little as possible.
People have become attuned to believing the less they can pay for life insurance, the better off they are. After all, “wasting” monies on extra premium only helps the insurance company (and possibly the agent), right?
It’s strange the life insurance industry is viewed as a commodity marketplace by consumers who think nothing of paying almost $5 for specialty coffee drinks. What should the advisor do about this? Let’s see.
With one company, assuming a 50-year-old male, best underwriting class, needing $1,000,000 of death benefit coverage, premiums can be as low as $790 for a 1-year nonrenewable term policy.
Why would customers even consider anything else? Probably, because that’s not the best product for 99.99% of the industry’s customers.
It should be noted that term insurance sales still make up 23% of all life premium sold, according to the most recent statistics from LIMRA International, Windsor, Conn. But the question to ask is, ‘is this the best deal for most consumers?’
To get the answer, it helps to look at other products. Let’s look at only one carrier’s product portfolio (not even including all its products or the hundreds of thousands, or perhaps millions, of variations available within the company’s illustration system). The accompanying table shows some different possibilities for the above 50-year-old man, using that carrier’s products. A quick glance makes the point: customers certainly do get what they pay for.
For instance, say the man wants a longer term contract. For $400 more per year, the death benefit can be guaranteed for 10 years–but after that, the premium skyrockets to $23,620 in year 11.
That begs the question: who would keep that contract beginning in year 11? Only someone who’s now uninsurable. That’s not a position any customer wants to be in.
Furthermore, this contract never has any cash value accumulation. Is that important to the customer? If so, he’ll need to look elsewhere.
