With an estimated $10.2 trillion protection gap in the middle market, there appears to be enough life insurance business to go around. Conning Research and Consulting, which published its findings in a 2012 report, attributed the gap largely to fallout from the financial crisis and recession.
While the economy has had a significant effect, life insurance can be a tough sell even in a robust market. The reasons are familiar: people think life insurance is unaffordable, especially in light of housing, food and other immediate expenses; they don’t understand the products or how they can be used; and they don’t have a readily available or trusted source.
Compared to their more affluent counterparts, middle-market families may have an even greater need for protection. But even people who have shopped seriously for coverage still don’t buy.
Producers and insurance companies can overcome these barriers to sales, however, and help prospects see that life insurance can help solve one of life’s most pressing concerns — providing for loved ones when they die. Producers can also help them make insurance fit into their budget.
With the right approach, three of the major hurdles to sales — concerns about affordability, inadequate understanding, and a lack of contact from insurance professionals — can be surmounted.
Addressing the affordability issue
Many potential buyers assume life insurance is too expensive for them. In fact, it’s relatively affordable for much of the middle market, especially if term coverage is elected. Nonetheless, a 2012 LIMRA study, Understanding Life Insurance Buyers and Non-Buyers, found that of all non-buyers, 38% said a better price might have changed their decision. Nearly one-third — 32% — said they might have decided differently if the cost fit into their budget.
There are a number of ways producers can address the affordability issue. The first step is to stop focusing on price and start addressing needs. While affluent prospects and customers routinely receive a detailed needs assessment, that’s not always the case for the middle market. Providing a needs assessment also positions the producer as a knowledgeable advisor. Since the majority of shoppers are looking for information from a trusted source, producers earn credibility that can lead to sales.
Most fundamentally, a needs assessment helps the prospect identify goals and what’s most important personally and whether life insurance can be a solution to at least some of those goals. While the majority of people buy coverage for income replacement and final expenses, other reasons include ensuring their spouse and family can stay in their home or covering college expenses, among others.
A needs assessment can help address the affordability issue by guiding people to the most appropriate policy size. Appropriate policy size really depends a lot on where people are in their working life, the makeup of their family, and how long their family is likely to need income. For example, a 55 year old who only needs to replace 10 years of income requires a smaller policy than a 45 year old, earning the same salary, who needs to replace 20 years of income.
In addition, many insurance companies offer product features that can make life insurance more affordable. An example would be policies that allow clients to decide in advance whether to structure the payout in level amounts, which is a less costly option than a lump sum.
There is no doubt life insurance has become more complex over the past several years. There are more products offering a variety of riders, not to mention combination products. Even for professionals, it’s often an effort to keep up. For a layperson, the complexity can be overwhelming. Education and clarity are essential. If prospects already have reservations because of cost or other factors, a lack of understanding can be a reason to procrastinate or walk away.
One area that’s often confusing to prospects is the many ways life insurance can fit into their planning. It can be used for the common reasons, such as income replacement or final expenses, but it can also be used for business succession, retirement planning or wealth transfer. Even if people have a financial representative, it’s entirely likely he or she has not touched on the life insurance issue, and producers have to start from scratch in educating clients and prospects.
But education is just the first step to making a sale. Some people may have simple situations that are best addressed with basic term insurance, while a more complex permanent policy may be more appropriate for others, particularly people on the upper end of the spectrum. Some people may have specific needs that innovative riders can address.