TUNING TERM FOR RETIREMENT
The release of LIMRA’s statistics for life insurance sales in 2010 was mixed news for the industry. Universal life and whole life sales increased significantly in terms of annualized premiums, face amount and number of policies sold. In contrast, term life sales fell 12 percent in each category over the course of the year.
Several possible reasons account for term life’s recent decline; some are specific to the insurance industry, while others stem from the larger economy. In terms of providing insurance coverage, the continued high unemployment rate in theUnited Statessuggests that people who are seeking to cut expenses are not looking to buy new term coverage. For those who are employed, many continue to rely on just group insurance. Additionally, distribution through a declining agent force is an ongoing challenge the industry faces.
The macroeconomic causes for term’s lackluster sales are beyond insurers’ and producers’ control. Nonetheless, there are steps the industry and advisors can take in an effort to reposition and reinvigorate term life sales. In April 2010, Prudential surveyed 761 consumers between the ages of 25 and 54 who had or shared responsibility for selecting insurance and financial products. Those surveyed had at least $50,000 in 2009 annual household income and planned to purchase, or had recently purchased, individual life insurance. The findings of the research guided our decisions as we developed our new term product—PruTerm WorkLife 65.
Recognize and adapt to the new economic reality.
The stubborn persistence of high unemployment in theUnited Stateshas led to a greater degree of financial uncertainty for many Americans. The reality is that they may be out of a job at some point during their working careers. Even if they don’t experience a downsizing, they face the risk of disability, which can also have a negative impact on their finances. Protection products should recognize these risks and help policyholders maintain their coverage during a financial setback. We asked survey participants about their interest in a waiver-of-premium feature that would pay policy premiums during a period of unemployment or disability. The response showed strong interest: 86 percent of respondents found the unemployment waiver of premium appealing and 87 percent found the disability waiver appealing.
“Reset” the policies.
Term insurance requires applicants to select key policy features: should they purchase annual renew-able coverage and benefit from initially lower premiums that they know are guar-anteed to increase? Or should they lock in a level premium for a specified period, which means they risk buying a policy period that’s “too short” or “too long?”
An alternative approach is to offer level premiums that focus on life cycle events, such as the duration of a typical career. For example, when Prudential asked consumers their planned retirement age, given their current financial and employment situation, 32 percent—the most frequent response—said 65.
Put greater emphasis on the con-version privilege.
Many term policies include a guaranteed conversion pro-vision, which allows additional planning flexibility to deal with an insured’s changing needs and financial circum-stances. Consumers seem to understand the value of a conversion privilege: 84 per-cent of respondents in Prudential’s survey found having the conversion privilege to age 65 appealing.
Consequently, we included guaranteed conversion to age 65 in the product. But it’s a little-used privilege. According to LIMRA’s 2010 survey, only 2 percent of term policy holders exercised their con-version privilege. Although there doesn’t appear to be a definitive explanation for the low conversion rates, I suspect that term owners forget about conversion after the purchase and subsequently lose sight of its value. Additionally, it’s possible that many producers don’t regularly follow up with term clients to review the benefits of converting a policy to permanent insurance, which could clearly be a missed opportunity to address changing needs. Demonstrating the value of guaranteed conversion in the initial presentation, particularly given the risk of age-associated medical problems, could enhance term life’s appeal to prospective buyers.
Expand the buyer pool.
Baby boomers’ children are establishing their careers and starting families, but many of their jobs provide less economic security and fewer benefits than their parents enjoyed. Structured properly, a gift of term insurance from parents to adult children can greatly enhance their financial security. It’s an affordable gift for the parents, but it could prove invaluable for their children’s families. Term life sales were flat in 2009 and declined in 2010, and it’s impossible to predict if and when sales growth will resume. But the lack of current growth doesn’t mean the product has lost its value or sales appeal. By refocusing and repositioning the product for today’s environment, I strongly believe insurers and producers can revitalize term sales.
Mammen Verghis is vice president, product marketing management with The Prudential Insurance Company ofAmerica’s Individual Life Insurance business, based inNewark, N.J