Even though there’s a polarizing debate among life insurance agents about the role of pure protection life insurance, the products in that arena are still growing in popularity. Some agents continue to be attached to the notion that whole life insurance is a good product for the consumer. The truth is, for the huge majority of the population, whole life doesn’t make much sense. There are a few reasons for this: it’s not a solid investment, it’s too complicated for the GenX digital consumer, and, at its foundational level, whole life is not meant for those that actually need life insurance.
It shouldn’t be a surprise that whole life insurance premiums can be as much as 10 times the cost of a term life insurance policy carrying the same death benefit. Life insurance is largely purchased by the middle class: consumers with mortgages, bills and kids to take care of. One of the most popular advertising tactics in the life insurance world is to compare the cost of a policy with a daily trip to the coffee shop. In reality, it will take more than cutting out that daily trip to afford a whole life insurance policy.
According to a recent article in the Wall Street Journal, the Society of Actuaries found that 20 percent of whole life policies are terminated in the first three years and 40 percent are terminated in the first 10. Consumers either don’t see the same value that a financial advisor does, or these policies are just too expensive.
In the words of Will Rogers, “The quickest way to double your money is to fold it in half and put it in your back pocket.” In the case of whole life insurance, this isn’t too far from the truth. Most times, a whole life insurance policy eats away a client’s returns in the first three or four years of the policy’s inception to cover agent commissions and company fees. In the majority of cases, clients can expect reasonable returns from between 2 percent and 4 percent. According to Blease Research, annualized cash returns from companies between 1991 and 2011 fit into this range. Personally, when clients ask me about the living benefits of term or no lapse universal life policies, my answer is that the living benefits are in the savings.
Another problem for today’s digital consumer? Whole life insurance lacks simplicity. Frequently the clients don’t understand how the product works, and in the worst case scenarios, the agent might not know, either. The boom in Internet sales for term life insurance only serves to punctuate the point that whole life isn’t suited for the digital sale. The majority of consumers who are online hunting for life insurance are interested in transparency, simplicity, ease of purchase and affordability. Whole life just doesn’t cut it, time and time again.
While the life insurance industry has been slow to catch up to modern commerce by using mobile and online tools, the changes have been noticeable. As Sylvia Porter once eloquently put it, “One of the soundest rules to remember when making forecasts in the field of economics is that whatever is to happen is happening already.” The same can be said for the life insurance industry. It’s unlikely that whole life is going to drop off the market entirely, but it’s more likely that it will be sold to an exclusive group of individuals. Specifically, financial advisors looking for tax shelters for their clients.
More agents are selling life insurance online and over the phone and carriers are doing all they can to adapt to today’s consumers. That means keeping things simple, and while whole life insurance is many things, simple is not one of them.
In the end, the decision on which product is better lies with the consumer. Based on today’s trends, it seems that “pure protection” will be the winner. The bottom line is that life insurance experts have been debating this for decades, but this has to be evaluated through the eyes of the consumer. The consumer doesn’t want to do their research only to become more confused. Consumers want coverage quickly and they want to know at a basic level what money their family will receive.