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.