More Americans are underinsured than they were a decade ago, and nowhere is the coverage gap larger than in the middle market.
This is a significant problem for the life insurance industry, but it also represents one of our biggest opportunities going forward. There are billions of dollars in potential annual premiums that lie untapped. The challenge is to create flexible, innovative ways to reach middle-market customers and help them get the kind of financial security and peace of mind they need.
LIMRA defines the middle market as those households that have between $35,000 and $100,000 in annual income. Last year, the industry association estimated 35 million middle-market households were underinsured, although half of that group was considering the purchase or expansion of life insurance coverage.
There are a number of factors that contribute to the middle-market insurance gap. One is that individual life insurance ownership is at a historic low. This is a trend that has been playing out over decades and is due to two factors. For one, fewer people are selling life insurance. And for two, those that do sell coverage usually have other financial products that meet retirement planning and investment needs, so there is less time spent explaining how life insurance works and how it benefits families.
Another factor is the economic downturn, which has changed priorities for many middle-market households — or at least changed their perception of what priorities should be in the short term. LIMRA research shows the top two reasons for not buying life insurance are that potential policyholders don’t think they can afford coverage or they have other pressing financial needs, such as reducing credit card debt, paying their mortgage or rent, or saving for retirement.
Despite these trends, the value proposition of life insurance hasn’t declined. In fact, you can make the case — and we should all be making it — that hard times make life insurance protection more valuable than ever. Nothing can push a family into a financial crisis faster than the unexpected death of a breadwinner with little or no life insurance to provide support.
To close the underinsured gap in the middle market, the industry needs to clear up misperceptions about the cost and necessity of life insurance coverage. It needs to take a more tailored approach to different groups within the middle market so those messages are heard more clearly. And it needs to step away from the focus on permanent life insurance and other products that may be more suitable for wealthy customers. It should concentrate instead on affordable life insurance options that can get middle-market families the kind of coverage they need to weather financial uncertainty.
Let’s talk a little about those misperceptions. One thing that’s striking is how badly consumers overestimate the cost of life insurance coverage. Asked to name the annual premium for a 20-year, $250,000 level-term policy for a 30-year-old policyholder in good health, Americans estimated $400 — or more than twice the actual $150 annual cost, according to a joint LIFE Foundation/LIMRA report this year.
We need to be more successful in conveying the affordability of coverage, and that requires some creativity and knowledge about the kind of customer with which we’re dealing. Gen X and Gen Y consumers, for example, might be more comfortable getting information online or through social media. That puts a premium on having clear, easy-to-navigate educational websites and responsive social media platforms. Women may require more concrete information before they make a decision on coverage, so we may need to consider seminars, webinars or face-to-face meetings.