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Life Health > Life Insurance

A Strategy For Volatility

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Oh, no, not another downturn. That was the buzz on late Thursday, May 6, after word spread of the stock market’s sudden plunge, with the Dow down at one point by nearly 1,000 points.

The bounce-back later in the day and the following Monday morning alleviated a bit of the tension, but as of this writing, many headlines were still a-blaze with words like “plunge,” “fear,” and “near collapse.”

Seeing those headlines, some Americans will no doubt link them to the recent videos of uprisings in Greece over its financial crisis and conclude, “Maybe we’re next.”

Such thinking dashes hope and invites panic. It makes volatility the focal point, not financial security.

Insurance products and services are ideally suited to address this issue. Whether it’s a life, annuity, health, long term care or even property-casualty product, insurance guarantees to pay benefits (or make payments) in specified circumstances–typically at point of need or crisis. They do this, regardless of market performance.

Yes, people do have to pay for insurance, and policies with the most guarantees/benefits do cost more than less rich contracts. But the cost/benefit is clear: those who pay will achieve far greater financial assurance–and predictability–than is available in the stock market.

It’s not that insurance makes volatility go away. But it sure does make volatility easier to stomach.

Insurance interests should be out in full force right now, talking about this–about how insurance helps sustain financial security in the short- and the long-term.

In some products, such as variable life and variable annuities, stock market performance does affect policy values. And market conditions do have an impact on interest crediting in general account products. But all fixed polices have minimum interest guarantees, and most variable policies offer guarantee options.

The guarantees put a floor on things. It’s that floor that screams value when volatility threatens financial security.

Surely, vast segments of the public are, or must be, ready to hear about the security-building aspect of insurance. Consider these nail-biters from recent NU articles:

–Over half of mid-income women feel unsatisfied with their current financial situation and uncertain about their future financial needs (survey by LIMRA, Windsor, Conn.).

–The average U.S. employee will need over 15 times final pay in retirement resources to maintain their current standard of living in retirement, but four of five are expected to fall short of meeting all financial needs in retirement (survey by Hewitt Associates, Lincolnshire, Ill.).

Retirees who have savings largely rely on investment income or draw down assets to replace pre-retirement income, but many lack substantial retirement savings and have “little margin for error” (research by the Government Accountability Office, Washington, D.C.).

Those findings came out before Thursday’s market rout. So consumers were already facing uncertainty about their long-term financial future (i.e., in retirement). The rout will likely add to their distress.

This is where insurance professionals can be extremely helpful, by pointing out how insurance products and services can help strengthen financial security–and counteract some of the volatility that will always exist, whether in stocks, inflation or interest rates.

Many insurance agents and financial advisors say they do bring up the long-term, security-building value of insurance with clients, and that customers do respond with strong interest, especially to the guarantees.

As for insurance companies, although many have curbed living benefit annuity guarantees in response to market pressures or reserve requirements, most are still offering guarantees. The interest-sensitive annuity and life products continue to guarantee a minimum interest rate, even though the crediting rates are down. A few life companies have rolled out new products aimed at protection and cash value buildup or lessening the impact of volatility on performance. And whole life companies are actively selling products (even if the dividend scales are down).

So insurance is there, with solutions that address financial predictability.

But sometimes it appears to be only quietly there. Not once during the past three market routs, for instance, have I heard even one person from the noninsurance world say, “Thank heavens I have an annuity, because my money is safe,” or “no skin off my nose; I’ve got cash value insurance and death benefit guarantees.”

This is a perfect time to change that. Volatility is a fact of life. So why not tell how insurance is a buffer to that, no matter how hard the wind blows?

Related articles:

Mid-Income Women Struggling Financially

Hewitt: This is A Wakeup Call On Retirement

Retirement Income: Republicans Lash Out; GAO, ASPPA Weigh In


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