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.
One thing that usually happens in a weak economy, though, that may affect an agent, is that litigation increases.
There are many reasons for this, some of which are not appetizing. For example, sometimes the cost of long-term litigation is less expensive than meeting one’s obligations–at least temporarily–especially if the money is not there to meet those obligations for the time being. This is probably more likely to occur with businesses than with individuals.
For individuals, though, the incidence of disability claims can be expected to increase.
While it may present problems trying to prove that “yes, the insured became disabled at about the time the insured was laid off,” those claims do arise. No doubt, in some cases, if the job was still there, many claimants would still be at work. So, in a bad economy, expect disability claims to increase.
How about lawsuits against agents? That would depend again on how the policy was sold. A good plaintiff’s attorney will not take a case just because the client is unemployed and in a bad financial situation. While hard times may, in themselves, generate sympathy from a jury, there still has to be a valid claim to assert. So, significant increases in lawsuits against agents are unlikely to occur, even though a consumer may be more likely to look for such a claim in a bad economy.
As a lawyer, I am in service business similar to an agent. We strive to do the right thing always, as do agents.
The same rules apply to how to conduct business regardless of the economy, and, frankly, the state of the economy should have no effect on how anyone conducts business. That way, whether things are good or bad, professionals can expect the same successes in the long term that they had before the current economic downturn.
Douglas I. Friedman, a partner in the Friedman & Downey, P.C. law firm of Birmingham, Ala., is national counsel on estate and business planning for insurers. His e-mail is firstname.lastname@example.org