Term Life Deserves A Makeover

Perhaps it is to be expected that the most economical form of life insurance–term life–would enjoy sales success in today’s tough times. However, this product is capable of much more than the insurance industry has allowed it to achieve.

For many carriers and agents, term life is simply an accommodation; a fallback product to offer when a customer cannot afford a more expensive product or is looking for the least expensive life coverage. In many such situations, carriers and agents reluctantly sell the term plan (usually level term) and resign themselves to razor-thin profit margins and lukewarm commissions. These in-force term plans often are then put on autopilot, with little remarketing or needs re-assessment before a claim is made or the inevitable lapse occurs (when premiums spike after the level premium period ends).

Unfortunately, this pattern ignores a basic, but key point–that selling a term product establishes a client/agent and client/insurer relationship that has value beyond the value of the term life sale.

Some carriers do an excellent job of offering attractive term conversion options to permanent plans, but others do not. Further, the timing and creativity of conversion offerings are often limited or poorly planned and designed.

Conversion offers could present greater value if triggered at defined anniversaries or at specified life events or attained ages.

And why can’t term contracts be exchanged for other term products, perhaps with longer level premium periods or return of premium provisions? This may be viewed as an exchange, not a conversion, but that is just semantics.

Split conversions could be more prominently offered, too, where a portion of the term coverage is converted to higher premium permanent coverage and the remainder stays as term.

The point is, once the customer relationship exists, offering additional benefits, often with higher premiums, can be beneficial to all. This is especially appealing as sales of term and other life products drift upward to older issue ages.

Level term premium structures after issue need revisiting, also. In the past, it made sense for actuaries to craft large premium increases at the end of the level premium period in order to minimize statutory reserves and cash values. Emerging regulations are making such approaches less compelling. Dramatic premium increases today force healthy lives to lapse the term plan either immediately when the premium spikes or shortly thereafter. The insured pool remaining after these lapses experiences poorer mortality.