The current economic “crisis” will have an effect on life insurance sales. But probably not in the way that media pundits are likely to think.
Presumably, consumers are cutting back on everything, and in that case, life insurance premiums will not be paid so that food can be placed on the table.
Well, is that really what is happening? Let’s think about it.
The first question to consider is whether the choice for most consumers is so stark. Is it really between paying life insurance premiums versus putting food on the table?
In some cases, that may in fact be the choice. If the family loses income due to layoffs, this can happen, to be sure. For example, if the product was sold in the worksite, where many mid-market sales occur, the policy may lapse. In these sales, the premiums may have been deducted from the employee’s salary, or paid for wholly by the employer. So, when employment ends, the policy is likely to lapse.
But, a different scenario will likely occur for individual life sales. There, the agent will receive a lapse notice, and the economics of the sale will justify taking the opportunity to reinforce the sale. While in some cases the sale will no doubt be lost, if the product was purchased for good reasons, it has a much better chance of being preserved.
In addition, even in a sour economy, the more well-to-do clients would not be expected to drop their insurance. These customers may not buy yachts as big as before, but the life insurance they own was most likely well thought out. In addition, the premiums are usually a relatively small portion of their overall expenses.
Therefore, life insurance purchased for reasons such as estate planning liquidity, business agreements and survivor income will generally continue as before, for the more affluent customers. This has been the trend so far among clients at my law firm.
A greater concern would arise if a major insurer were to fail. To my knowledge, when that has happened in the past, all death claims were honored, and eventually cash values were fully available.