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People know they need life insurance, but are reluctant to buy. Here's how to sell the product to your clients.

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Life insurance. Two simple words about a complex product that nearly everyone agrees they need, but sometimes have a hard time making the leap and actually buying it.

For advisors, that is both good and bad news. The good news is that if you can find a prospect that is interested in purchasing a life insurance policy, chances are promising you can use your persuasive powers to convince them to do so.

The bad news is, a rough economy has made it a tough sell as people have other priorities for their dollars. Further exacerbating the problem is an incremental thinning in the ranks of life insurance agents, necessitating new channels of distributions and recruitment methods so everyone who wants to buy life insurance can.

For this year’s Essential Guide to Life Insurance, we explore where the industry stands as it relates to the senior market.

They want it,
they need it…
they don’t buy it

According to LIMRA, individual life insurance ownership among those 65 and older has decreased in recent years. In 2004, 51 percent of those past their 65th birthday owned a life insurance policy. Six years later that percentage fell to 41 percent. Why so?

Perhaps it’s because many in that age group are working longer and depending instead on group life insurance, says Robert Kerzner, president and CEO of Windsor, Conn.-based LIMRA, LOMA and LL Global. The numbers tell the story: In 2004, 20 percent held group insurance; in 2010, that percentage rose to 27 percent.

Those statistics, however, may foreshadow a shaky financial situation post-retirement, Kerzner suggests. “Many of them when they retire lose their group insurance, which likely means that the longer-term ownership for those 65 and over will get worse,” he explains. So why aren’t they buying life insurance? Like so much of life after the financial calamity of 2008, their view is shaped by a recession.

A 2010 life insurance ownership study by LIMRA found that consumers’ financial priorities have shifted. Today, they are more concerned about simply making ends meet, saving for retirement, paying down debt or even funding a child’s college education than buying life insurance.

Speaking of debt, LIMRA further uncovered that the average retiree and pre-retiree age 55 to 70 is more than $100,000 in the red. Not the way anyone wants to enter their leisure years, especially when people are living longer; meaning, if one spouse dies, the other faces the very real possibility of running out cash without a life insurance policy.

“They may need the life insurance just to create an infusion of cash at the first death, to get their spouse through retirement,” Kerzner says. “Yet fewer of them have it and yet they need it more than the retiring generation of a decade or two ago.”

However, seniors may be getting the message that they do need life insurance and are buying it: MIB Life Index revealed that while applications for underwritten individual life insurance were down or flat for two age categories (0 through 44 and 44 to 59), it grew by 8.3 percent in the second quarter for those 60 and up.

Risk assessment
Emphasizing how much money your clients need in retirement now and in the future and the myriad risks that could cut into those cash reserves are the most persuasive selling points when marketing life insurance products. Topping the list of potential risks is, of course,longevity: People are living longer; therefore, their need more cash to fund a retirement that could last 30 years.

“There was a belief 20 years ago that ‘I only need life insurance till I retire,’ especially in the boom years,” Kerzner says. “People believed ‘I’m going to have so much money because the stock market is going up, because of the value of my house [was going up], I don’t need life insurance.’ An advisor today needs to be explaining that the need is greater than ever before for permanent insurance in retirement to assure this infusion of cash because longevity is such a tough issue.”

It’s not a question of merely adding up how much cash a senior has or will need, but also looking at how a client wants to spend their retirement, what’s important to them. “If you want to sell insurance, the advisor needs to help a person understand why they need it and they need to holistically look at that person’s total picture,” Kerzner says.

Flight to safety
Taking into account the longevity risk and the upheavals in the economy, it’s not surprising that seniors, when they do buy life insurance, are looking for safe products like permanent life insurance.
“More [people in] that age group are buying permanent life insurance than what we’ve seen in previous years,” says Marvin H. Feldman, CLU, ChFC, RFC, president and CEO of the LIFE Foundation in Arlington, Va.

“People are basically looking for the safety, the security and the guarantees provided by today’s generation of permanent life insurance, whether that’s whole life, universal, etc. They realize that they are going to need this protection beyond the norm, which they thought was to the point that they retired. Now, they realize they need it beyond retirement. And permanent life insurance is the appropriate answer.”

Statistics support that assertion. In the first quarter, univeral life grew by 14 percent in annualized premiums; 24 percent in face amount; and 18 percent in number of policies sold, reports LIMRA. Variable universal life was up 14 percent in annualized premiums and 8 percent in face amount, but saw an 11 percent drop in number of policies. Whole life gained in all three categories, but sales of term life were down 11 percent in annualized premiums and number of policies and 9 percent in face amount. Overall, life insurance sales grew by 8 percent in the first quarter.

Drilling down into the different subsectors of UL, policies that had the lowest cost for long-term coverage with no guarantees were up 16 percent, while indexed UL–the “really big story of the quarter,” Kerzner says–jumped by 61 percent versus the first quarter of 2010.

Feldman notes that advisors can structure a permanent life insurance policy with internal rates of return better than what a policy holder can obtain with other “safe, secure” investments. “Of course, that’s because safe, secure money has an extremely low return today,” he adds. “But we are seeing some of the whole life policies out there that have 4 percent to 5 percent long-term rates of return.”
That doesn’t mean, however, that seniors have completely abandoned term life insurance, despite the increased cost for them.

“For those seniors that have a temporary need for protection, they are still looking for term insurance,” Feldman explains. “The problem is when a client has purchased term and then realizes that the need is going to last beyond those five or 10 years and now they are finding that conversation becomes expensive or if it’s not a convertible policy they really don’t have any options because their health has changed.”

Fewer “feet on the street”
Americans want life insurance, they really do. Half (58 million) of U.S. household say they need more life insurance, according to LIMRA. So what is holding them back? It could be that there are fewer life agents calling on them to make the sale. “We don’t have enough feet on the street and we need to get more,” Kerzner says.

LIMRA counted 171,800 affiliated agents in 2007, a sum it estimates will grow to 185,000 when the figures for 2009 are tallied. Yet the organization anticipates that number will decrease when the totals for 2010 and 2011 are finally added up, dropping to 162,700 this year. In the independent producer pack, the work force dropped from 150,765 in 2007 to an estimated 145,000 in 2009.

What’s more, the sales force in the independent producer class is aging, with a median age of 52, according to LIMRA. Affiliated agents are younger, with a median age of 47.Those trend lines mean the companies must do a better job of recruiting, training and compensating a new cadre of younger agents so they remain in the industry long term. Simply shifting experienced agents from one carrier to another is not enlarging the workforce, Feldman says.

Furthermore, the industry as a whole has to do a better job of portraying itself as a viable career opportunity to Gen X’ers and Y’ers. For instance, those in that cohort would rather be a financial advisor than an insurance salesperson. Also, they are more interested in working in teams than being entrepreneurial. “So how you portray the role to Gen X and Y could alter their decision as to whether they think it’s a good career for them or not,” Kerzner says.

Finding new distribution channels, particularly those that reach the growing middle market, could help the industry–and its agents–prosper. The good news is, the public wants the product and they prefer to meet with an advisor in person. “There are plenty of people that want help, need help. [They] may be a little resistant, I’m not telling you they are all saying ‘we’re ready,’ ” Kerzner says. “ We have to find a way to get producers to see more qualified people more often.”