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Life Health > Life Insurance

The Hard Sell on Whole Life

By Warren S. Hersch

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Since the economic downturn of 2007-2009, when plummeting equity values prompted many a client to jettison risky market bets for more conservative investment vehicles, no-nonsense whole life insurance has enjoyed a marked upswing in sales. But the verdict is out as to whether whole life is riding a short-term fad or a long-term rise in interest among consumers.

In the estimation of Guardian Life, which hosted the Whole Life Media Forum 2010 in Manhattan on October 5, the trend line clearly leans long-term. Michael Ferik, a senior vice president for individual life sales at the carrier, pointed out a new Guardian survey that highlights the reasons underpinning whole life’s growing appeal, and not just among older policy owners.

The survey pegs the median age for whole life insurance buyers at 37. Those in the 35 to 44 age group make up the largest percentage of buyers at nearly 35%. The 25 to 34 crowd constitutes the next highest block of buyers at more than 30%, followed by 45- to 54-year-olds at just over 20%.

Why are young buyers attracted to this oldest of permanent life insurance products? Guardian cites several motivating factors, starting with the primary one for purchasing life insurance: the desire of breadwinners to protect their families. Nearly three-quarters (72%) of survey respondents flagged this reason, as did 79% of buyers over age 40.

Also figuring into respondents’ enthusiasm for whole life is the product’s guaranteed cash value (the answer of 66% of policy owners under age 40 and 71% over age 40); and the need for a secure retirement income (54% versus 50%-plus). The survey notes, too, that younger buyers explored other savings vehicles, including mutual funds, stocks, CDs and other types of insurance, before opting for whole life.

The good fortunes of mutual life insurance companies that sell whole life as a core product stem in part from a heightened concern among post-recession consumers about the strength of firms backing the financial products on offer.

Robert Broatch, Guardian Life’s executive vice president and chief financial officer, highlighted an August 2009 survey from Moody’s Investor Service, New York, the report showing a consistently high “Aa2″ rating among mutual insurers between 2001 and 2009. As a group, Broach noted, mutuals are better capitalized, and their long-term interests are more closely aligned with their policyholders, than stock-owned carriers.

In sum, the media forum’s panelists painted a bright future for whole life sales. But I question whether whole life can ever again achieve the market dominance it once held in the industry–or more than a minority share of risk protection portfolios among buyers of the product. Households in the large and underserved middle market generally need to supplement whole life with term products to meet their insurance needs.

Yes, whole life’s cash value and death benefits guarantees are superior to the alternatives. But the flip side of the product’s financial strength (in comparison to UL and VUL offerings) is its premium inflexibility. That rigidity makes whole life a hard sell–and not just for middle market prospects. Small businesses that need to fund buy-sell agreements, succession plans and executive compensation arrangements more often turn to other permanent insurance products because they demand flexibility in plan design and funding.

Other barriers to growing whole life’s market share are the large and growing workforce of independent producers that have little educational grounding in the products; and a seemingly indifferent financial press that tends to cover this product only in passing.

But I heard an earful about the product during Guardian’s whole life fest. To the extent that such gatherings can overcome product misconceptions and raise whole life’s prominence in the marketplace for financial solutions, the company is to be commended. But Guardian–and its fellow mutual insurers–have their work cut out.

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