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What Is "Affordable Life Insurance"?

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The term “affordable life insurance” is increasingly showing up in new product rollouts and promotions, even for universal life policies.

It’s also a pretty popular “key word” on search engine optimization lists. A search on Google brought up 194,000 web pages mentioning the term.

Is that term just marketing talk, designed to attract buyers in troubled economic times? Or does it signal the emergence of a new class or type of life insurance, perhaps for the mid-market?

Interviews with numerous insurance experts produced mixed assessments and a clear yearning for “affordable” mid-market life insurance solutions.

Some don’t notice much use of the term, let alone promotion of affordable policies. Camille Cosco, independent agent in Elmsford, N.Y., is an example.

A mid-market specialist, Cosco says she doesn’t see promotions for such policies. Nor has she found a satisfactory affordable life product that will “go the distance” for her sole proprietor and small business clients.

Many of her mid-market customers do want affordable coverage, she says. “They want it to protect their families.”

But since she hasn’t found a viable affordable life policy, she says she has come up with her own solution. She uses “existing products in which I have faith.” (See box.)

Other professionals, like Anne Rubeo, an independent agent in Elmsford, N.Y., do hear the term “affordable life insurance,” but they don’t like it. “I think the term is misleading,”

“It reminds me of marketers selling final expense insurance in face amounts of $15,000 to $25,000 over the television with no guidance from an agent. If a person buys this guaranteed issue insurance, what good will it do, other than pay for the funeral and the gathering afterwards?

“And if the customer decides to get a $100,000 ‘affordable’ life policy, chances are the person will need to go through underwriting and if a health problem turns up, the policy will be more expensive than proposed. But even if the person is healthy and does get a $100,000 ‘affordable’ policy, if it’s written on a breadwinner with two or three kids and a mortgage, it won’t do much good, because their actual need is much greater.”

Rubeo worries about consumers who buy policies that are marketed as affordable without consulting an agent or advisor. “If they don’t understand what they’re buying, they can get in trouble,” she warns.

Carriers are struggling with the affordability issue, points out Costco. This is part of their effort to recapture the mid-market after many years of focusing on high-net worth customers, she says.

Other insurance professionals agree.

For instance, “there has been a lot more marketing material around affordability–and advertising, too,” says Tim Pfeifer, president of Pfeiffer Advisory, LLC, Libertyville, Ill.

He doesn’t see prices coming down in primary life products, however. In fact, he says just the opposite is occurring, with level term (LT) and universal life with secondary guarantee (ULSG) rates going up moderately in response to market conditions and policy reserve regulations.

Still, “the public today is so focused on price and on managing every dollar, that the companies are putting the cheapest products more front and center in their advertising,” Pfeifer says. For instance, they may be positioning a 20-year level term policy as more affordable than a 30-year LT [most of which are no longer available]. But I am not seeing any companies offering ‘specials’ to drive that through the system.”

Although the repositioning of existing products may signal elements of a mid-market sales effort, Pfeifer adds, “I don’t think that ‘affordable life insurance’ has become an industry term that is, say, part of a major mid-market strategy.”

Byron Udell, founder and president of AccuQuote, an online quoting service based in Chicago, agrees the phrase is not a distinct industry term with set characteristics.

“Cheap, low-cost, affordable–it’s all the same, just marketing semantics,” he says. “Still, the term is used a lot on internet sales sites and exchanges as a marketing descriptor.”

Life insurance has actually been affordable for quite some time, he contends. To illustrate, Udell says “a 40-year-old man, non-smoker in perfect health, can get a $500,000 20-year level term policy for $360 a year in today’s market. But in January 1994, the best rate in the country for the same coverage was $995 a year.”

Even after last year’s 3%-5% price increases on LT and ULSG policies, prices are “still near historic lows,” he says.

The references to “affordable life insurance” being seen today may stem from carrier efforts to come up with solutions for mid-market buyers, Udell suggests. “Conventional wisdom says that mid-market customers need simple products they can buy quickly with minimal health questions and fast turnaround,” he explains. “So carriers have been developing simplified issue products for this market and advertising them heavily.”

The assumption some people make is that such products are affordable for this market. However, Udell cautions, “if the person is healthy, those products are not as affordable as fully underwritten term life insurance. For example, a simplified issue term policy on a healthy applicant for $300,000 might be issued within 48 hours. But the cost can be two or three times that of a fully underwritten policy that’s issued in two months.”

When customers call requesting affordable or cheap insurance, he adds, “we point that out.”

There is more to the affordability story, however. Some insurance firms have been actively exploring ways to deliver products to the mid-market, and affordability is a key component of that effort, says Kevin Kraft, senior executive-life insurance growth and distribution in the Phoenix, Ariz. office of Accenture, a management consulting and technology services company.

They are “looking at ways to change the products and how they are sold, to make them more valuable and affordable to that market,” he says, explaining that “affordability can be a function of the channel used to buy the insurance.”

Until recently, he says, distribution to the mid-market has followed one of two main tracks: 1) offer term life sales via online life insurance exchanges to price-motivated buyers who are indifferent to carriers and who do not seek a personal experience; and 2) offer life insurance via the bigger, world-class carriers that provide branded insurance and personalized attention from the agent, but with less price advantage.

Now, he says, some firms are looking for a “mid-point,” where mid-market buyers can get “the price point benefits of shopping via an exchange with the emotional or branded connection that goes with buying from the Big Guys.” (See box.)

A few companies are going right ahead and designing insurance policies with affordability in mind. One example is Genworth Financial, Richmond, Va.

The insurer made a conscious decision to pursue the mid-market, which it calls Main Street America, with affordable life insurance, says Buck Stinson, president-insurance products.

This is a large market but it is “under-penetrated, underserved, and underinsured,” he says. Household income ranges from $50,000 to $250,000, and the adults typically rely on life insurance provided by the employer. The average face amount runs from $100,000-$500,000, not near the recommended four- to six-times annual income, says Stinson.

Genworth has concluded that to serve this market effectively the carrier needs to accommodate smaller face value policies, with cost efficient products for households having $100,000 in combined income. The current recession has reset expectations for a lot of people in this market, Stinson says, noting that “many are seeing that the value of their homes and 401(k)s do not always go up and that their employment opportunities are not always going higher.”

That means insurers who are in this market have to look for life insurance sales with lower face amounts, Stinson says.

Many such households have no money to pay for a $5 million policy, so the strategy is to redirect them to $300,000 to $500,000 face amounts that can protect basic family needs if the breadwinner dies.

In response, Genworth has introduced a ULSG and a term UL, both of which are structured to be affordable in this market. (See box.)

The insurer is also offering educational and back room support to agents who are selling this market. Distributors have seen their incomes decline by about 30% from pre-recession days, so they are looking for a fresh approach that will help them regain that 30%, Stinson says. Genworth believes that if agents can have a product that resonates with Main Street customers, it can help agents start up conversations with those customers about keeping their life promise to their children, he indicates.

But to do this, “the product is going to have to be affordable,” he stresses, “because people don’t have a lot a money to work with.”

For her part, Cosco, the New York agent, says she “would very much welcome the arrival of affordable life policies.” But there is a problem with that, she concedes. “What is affordable?”