Consumer Psychology: Why some insurance products sell better than others.

While people know their whole lives they are going to die, thinking about this ultimate destiny is difficult. Yet that is what insurance producers are asking consumers to do in the life insurance sales process. Producers must be sensitive to consumer psychology while helping their clients recognize and accept their needs for financial protection.

What consumers are thinking Most consumers know they need life insurance even though they may not have enough or any at all, said Richard A. Brugger, Jr., LUTCF, Vice President of BGA Growth Strategy for Prudential Individual Life Insurance Marketing. “Most will say it’s difficult to decide how much they need and they worry about making the wrong decision,” he said.

Research revealed that consumers value the guarantee life insurance provides. “Some consider life insurance a ‘must have,’” Brugger said.  “They recognize that the risk of going without life insurance was more than the cost of maintaining a policy and they saw it as a ‘safety net.’ They also mentioned having life insurance gave them ‘peace of mind.’”

As when making any purchase, consumers are seeking value when they shop for life insurance, but that value is not always apparent, explained Leon Huffman, President of Orlando-based Huffman & Associates. “Consumers don’t shop for life insurance in the same way they do for many other products,” he said. “Frequently the need for life insurance is either not obvious to the consumer or is way down their list of life’s priorities. People don’t wake up and say, ‘Today will be a good day to purchase life insurance.’”

Even when a consumer is prepared to purchase life insurance, they frequently underestimate their need, Huffman pointed out. “This is especially true of an income replacement sale,” he said. “The financial services professional is challenged to bring the consumer to the point of understanding the capital necessary if an income is eliminated. The consumer must balance this new realization with their pre-conceived notions about life insurance and the honesty of those that market the product. Then there are always the cost considerations.”

Consumers’attitudes toward purchasing life insurance depend, in part, on their ages and life situations. 

 

Life cycle factors Consumers’ attitudes toward purchasing life insurance depend, in part, on their ages and life situations. Young, newly married couples may not see any pressing need to replace lost income particularly if both are working, Huffman noted.  Once they buy a home, start having children, or start a business, these added financial responsibilities can motivate changes in a couple’s thinking about life insurance.

Gen X consumers, those born between 1965 and 1980, recognize the need for life insurance. “They’re most likely to buy in person, but the Internet is an important resource to tap into,” Brugger said. “They need to have access to an insurance professional through that resource.” The younger Gen Y consumers don’t want to be sold, instead preferring to be empowered to buy life insurance. “They don’t need extreme marketing messages and gimmicks,” he pointed out. “They want to be educated about life insurance.”  Another issue for Gen Y is the lengthy time it takes to obtain a policy, so anything the industry can do to speed up the buying process would be beneficial with this age group.

“As life progresses, a successful business venture can result in succession planning for its owners,” Huffman noted. “This frequently results in the discussion of life insurance to provide the necessary liquidity to fund the transfer of ownership properly.”  The focus is on legacy planning in the final third of life. “This is a completely different dynamic,” said Huffman.  “Now the consumer needs a high level of professional advice which can frequently include life insurance considerations.”

What sells well and what doesn’t Huffman said the best selling life insurance products continue to be guaranteed premium term insurance and guaranteed premium universal life. Consumers have an easier time seeing the value of these products and producers have an easier time explaining that value. With a guaranteed premium, the consumer does not need to place additional trust in the insurance company’s ability to perform.

Cash accumulation type products including current assumption universal life, variable universal life, and whole life insurance are the slower sellers. To be more successful in selling these products, “First I think producers need to convince themselves of the value these products represent,” Huffman emphasized. “As the price of guaranteed universal life increases, a new look at the current assumption costs to provide a death benefi t beyond life expectancy needs to occur. What are the relative costs to the consumer? What is the value of the additional cash in the current assumption product?”

Brugger said some newer variable universal life products with a death benefit guarantee do appeal to consumers.  When they described this product to focus groups, consumers saw it as the best of both worlds, with a guaranteed death benefit regardless of market conditions and the potential for cash value accumulation.  “They liked that you could pay until age 65, make no more payments, and still have a death benefit guarantee,”  he said. “That was their big concern. They liked not having to pay premiums during retirement.”

In Summer 2009, Prudential surveyed middle-aged people who mostly had incomes greater than $100,000 on their views about life insurance. They found most preferred a death benefit in effect for life even if it meant paying extra for the policy. “They recognized that insurance could get more expensive for them

as they got older,” Brugger said.  “They understood that when they renewed their term insurance it might involve another health exam and could be harder to get as their health changed. We’ve been saying this for years to consumers, ‘Your health is your greatest wealth,’ so the best time to buy insurance is when they’re young and healthy.” To get consumers to consider buying life insurance, he recommends asking, “Are you as healthy now as you were 10 or 15 years ago?”

Consumers reluctant to purchase life insurance might find return of premium term products appealing. Brugger said selling this product involves psychographics rather than demographics. “It’s for people who don’t believe they’re going to die,”  he said. “You could be looking at a certain segment of the population” including athletes and other healthy people who expect to live beyond the terms of the policy, but recognize the need for life insurance. Getting all of their premium payments back if they survive can work well as mortgage life insurance, college savings, and even for retirement planning. On the other hand, consumers who fear the worst may prefer products with riders that will cover their premiums if fate deals them a bad hand, like losing their jobs or becoming disabled.

In talking about life insurance, it is important to use language consumers understand and can relate to.”

Communicating with consumers In talking about life insurance, it is important to use language consumers understand and can relate to.  A Prudential consumer focus group found there were many commonly used insurance phrases customers did not like. In discussions about variable products, these included “buy low, sell high,” because it made life insurance sound more like an investment, and “downside protection with upside potential.” Consumers did not understand the meaning of “asset allocation portfolios” and “permanent life insurance.”

 But there were words consumers did like which producers should work into insurance discussions. These popular terms were “tax smart,” “guarantee,” “choice,” “flexibility,” and “customizable.”  Consumers don’t want one size fi ts all insurance policies, instead preferring a policy designed to suit them and their needs exactly.

To sound natural and conversational during the sales presentation, it is important to know the products well and practice the conversation in advance, Huffman said. Producers must listen carefully to what the consumer is saying and repeat back what they said to show understanding. At the same time, you must remember the non-verbal aspects of communication. Producers should sit up straight. Look the consumer in the eyes. Pay attention and show you are interested in them and what they have to say. If the client is a couple, consider what both spouses have to say even if one partner takes the lead in the conversation.

Taking notes shows you care and want to get things right, but don’t let your note taking distract you from the communication, Brugger said. “Don’t interrupt the prospect,” he said. “Silence is very powerful. Listen for the ideas behind the words, not just the words themselves. You want to empathize with them. Ask questions to clarify what they say. Ask if there’s anything else they’re concerned about.”

How BGAs can help producers While producers market life insurance every day, they are not always aware of the latest consumer research done by insurance carriers. “That’s why it’s important for the BGAs to tap into this carrier consumer research to help the producers,” Brugger said. By joining research and marketing, the consumer will be better served and the producer will sell more policies.

In the Summer 2009 Prudential study mentioned above, even though 90 percent of those surveyed had lost investment assets and almost half had lost jobs, income, or health coverage, 94 percent of those who had individual life insurance had retained that coverage and 93 percent said they considered it a must. Because unemployment remains so high, more consumers are realizing they need individual coverage outside employer-based policies.

“Our job is to help consumers understand they should reevaluate their needs and to educate them about product choices,” Brugger said. “Oddly enough the financial crisis seems to have served as a wakeup call for many consumers who are now mulling over some of the things we have been saying for years.” With the financial disruption still affecting so many, now is the time to use consumer psychology to sell the benefits of life insurance.

Jean Feingold is a Gainesville, FL-based freelance writer. Her work has appeared in many trade magazines. She holds an MBA in management from the University of Florida and a BA in psychology from New Coll

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