We live in a spreadsheet world, here in the life insurance industry. Too many times, he with the cheapest premium — whether for term or universal life, indexed UL or whole life — wins.
Given that, the disinterested observer could only assume that life insurance is purely commoditized, with little feature differentiation, and thus offers homogenous value propositions across the board within specified product categories. Guaranteed UL? All the same. Index UL? All the same? Term? Whole Life? Same, same, same. Price alone is the only criteria on which to compare and contrast, if one is not willing to take a closer look.
Interestingly enough, the last couple of decades have seen the rise of niche markets in consumer goods for otherwise seemingly commoditized products. Let’s look at coffee — so commoditized, in fact, that it’s traded on commodities exchanges! Again, the disinterested observer would assume little to no differentiation in a hot cup of joe … but we know all too well that this just isn’t the case today.
In fact, each day, many millions of people are more than happy to pay more for their cup of joe at a little place called Starbucks than they would at McDonald’s. Truth be told, a 16-ounce Mocha Frappuccino from Starbucks costs 33 percent more than a same-size Frappe Mocha from McDonald’s — $3.99 vs. $2.99 as of this writing.
Why are so many people lining up at Starbucks to buy their “commodity” at a higher price than McDonald’s? The simple answer is this: perceived value. The Starbucks customer values the normal benefits of coffee (such as the caffeine boost), but also values the other, more nuanced aspects of the brand. These might include the service experience provided by the barista, the implied prestige in being associated with the brand, the artful descriptions of the regions and farms from which the beans are harvested, and even the purchasing practices (for example, fair trade) in which the company engages.
Clearly, if coffee has been de-commoditized, the question is, can we do the same for life insurance? Consider some of the best term products available today. While the rates alone might stand on their own merits, the various ways that certain products can be configured — such as laddering several durations — can add real value to the customer’s bottom line.
And let’s not forget certain guaranteed UL products. I’m thinking of one that has secondary guarantees, and while it remains competitive in many cells, the key differentiators are guaranteed cash and future flexibility that provide real value. Unless you can guarantee that your client’s needs won’t change 20 or 30 years in the future, the ability to scale back the premium and death benefit of products like this in exchange for a partial cash surrender can also provide real value.
Look around at the financial world in which we live in today and you’ll see that flexibility is in short supply. Look for product portfolios that offer superior flexibility, which — in addition to price considerations — completes the value proposition of the products.