Closing the life insurance gap: your role
Why don’t consumers acquire the life insurance coverage they need and (in many cases) want? The Barometer Study reveals big reasons why.
According to LIMRA International’s 2015 Insurance Barometer Study, 100 million Americans (43% of the adult population) have no life insurance coverage. The rate of household coverage has continued to trend down since 1960 and is now near a 50-year low. At the same time, LIMRA reports that half of all U.S. households (about 59 million) believe they need more life insurance.
This is one of the biggest gaps in the history of U.S. financial services – in terms of both people and dollars. It represents a huge opportunity for the life insurance industry and you.
The majority of U.S. consumers still prefer to buy life insurance face-to-face through an advisor or agent. Your awareness of these facts is critical to closing the gap. What can you do? Here are a few simple ideas suggested by LIMRA research.
Addressing perceived obstacles
|Top Reasons for Not Purchasing Some or More Life Insurance
|| % of Consumers Who Mention
|1. It is too expensive||65%|
|2. I have other financial priorities right now||61%|
|3. I have as much as I need or I don’t need any||55%|
Let’s look closer at each.
1. Cost – The Barometer Study asked consumers what they would pay in annual premiums for a $250,000 level-term policy on a healthy 30-year old. The median guess of all consumers was $400. For people without life insurance, it was $500. For consumers under the age of 25, it was $600. In reality, the actual cost of coverage can be much lower.1
Consumers perceive that life insurance coverage costs two to four times more than it actually does. You can help narrow this gap by delivering quotes to clients and prospects, and it’s not a bad idea to start with level-term, to overcome misperceptions. Once you’ve addressed the real cost of pure coverage, you can move on to affordability issues in permanent life insurance.
2. Other priorities – U.S. consumers feel their budgets squeezed by a rising personal cost of living. Among the financial priorities that keep consumers from buying some or more life insurance, these were mentioned most: Basic living expenses (65%), non-essential expenses such as Internet service and cell phone service (49%), accumulated debt (38%), saving for retirement (37%), increasing savings (37%), and health expenses (30%).
This suggests that you may need to focus on two goals: 1) understand a household’s total spending picture; and 2) position life insurance higher on the spectrum of spending needs. Don’t be shy about asking for budget details. Help clients and prospects find the money they need for premiums.
3. Already have enough coverage – In a study called Closing the Life Insurance Gap, LIMRA documented that U.S. households have $11.0 trillion of existing life insurance coverage, and another $15.3 trillion of needs not covered by existing financial resources or life insurance. In other words, America is under-insured (for life) by $15.3 trillion!
The best way you can help to close the gap is to bring this giant number down to the individual household through a basic “needs analysis” process. The LIMRA template, used in this study, may be used as a point of reference. It assumes that households need coverage equal to:
- Seven years of pre-tax household income multiplied by 75% (assuming 25% for taxes)
- Plus outstanding debts and estimated funeral costs of $15,000 per adult
- Minus existing resources and existing life insurance face amount
Among households that have existing life insurance coverage, only 39% have enough under this method.
With an appropriate fact finder, which will help you ask the right questions about income, debts, resources and coverage, you will gain additional information about your client’s needs, which is a good start to forming a proper plan.
One household at a time
The only way the life insurance industry can close the life insurance coverage gap is one household at a time with your help. By addressing the biggest obstacles, you will help clients and prospects in your market see that life insurance is affordable and essential within a comprehensive planning process.