Leveraging the Need for Guarantees in Today’s Market
Posted by DAI Life Brokerage Services on June 5, 2012 · Comments Off on Leveraging the Need for Guarantees in Today’s Market
The weak economic recovery has left many consumers standing on the sidelines filled with uncertainty about their financial decisions—Is it the right time to buy a home? Is the job market stable enough to pursue new opportunities? Is it safe to invest in the stock market? The trends shaping today’s consumer purchasing decisions are the result of the uncertainty, chaos and turbulence around taxes, the economy and changing demographics. As consumers try to navigate through these challenging times, the drive to secure guarantees, ensure flexibility and regain control is at the core of their financial planning efforts. With traditional safety nets such as defined-benefit pensions and Social Security benefits withering away, consumers are feeling increasingly responsible for their own financial security. In addition, they are aware that their children and grandchildren may not have nearly the same opportunities they’ve had. It’s not surprising that consumers have adopted a more conservative approach towards the products and services that they choose. At the intersection between this conservative point of view and the need for guarantees, flexibility and control is a significant sales opportunity for guaranteed life insurance.
The percentage of consumers willing to accept moderate to high risk in financial decisions decreased from 62% in 2001 to 45% in 2009. 1
And even as the economy began to turn around in the fall of 2010, consumers continued to gravitate toward a more conservative path—27% felt they needed to permanently go “back to basics” with their spending and savings habits (up from 19% in the fall of 2009).2
The Financially Conservative Mindset
This increasingly conservative mindset has directly impacted the type of life insurance products consumers are interested in buying. From 2000 to 2011, the industry saw a shift away from products with higher risk, such as variable universal life, and toward more conservative products with guarantees. This conservative sentiment is reflected among the affluent. According to LIMRA, affluent households have become more conservative because of the recession (75%) rather than less conservative (25%)—about a three-to-one margin.3
Securing the Guarantees
Universal life products are becoming increasingly popular— up from 18% of sales in 2000 to 40% of sales in 2011.4 UL products, like Transamerica’s TransACE®, offer lifetime and shorter no-lapse guarantees, protecting the death benefit regardless of how small the policy’s cash value becomes (provided that policy provisions continue to be met). TransACE also includes endorsements and options that address consumers’ focus on flexibility and control. With the new MultiFlex Surrender Endorsement (included at no additional cost), policy owners can choose an exit strategy to fit their needs and surrender their policy during the 60-day period following the 15th or 20th policy anniversary, or at any time on or after the 25th anniversary and receive an enhanced surrender value of the lesser of 100% of premiums paid or 33% of the face amount. This adds a layer of flexibility and allows a consumer to be better prepared for unexpected life changes that may take place— whether health, family or business-related. Consumers can also add Transamerica’s Income Protection Option to their TransACE policy to set up a guaranteed monthly income stream for up to 25 years with optional initial and/or final lump sums to beneficiaries.
This option, available at no additional cost, is a great feature for clients who want paycheck protection or estate equalization plans for children and grandchildren.
As traditional market segments shrink, it’s fortunate that sales opportunities are being created by changing demographics. Emerging affluent market segments include:
■■ Women, who now control or influence the majority of household investment decisions, tend to be more risk adverse and look for guarantees when planning for their families. They also tend to be reliant on and loyal to their advisors.
■■ Multigenerational households, where financial planning must take into account self-security, care of elder parents, and the needs of children and grandchildren, are looking for guaranteed products to help ensure their varied set of needs are met.
The Bottom Line
Today’s consumers will continue to remain conservative when considering the purchase of financial products, even as the economy turns around. Transamerica is well-positioned to address this need with the products that provide the guarantees they desire. Producers can take advantage of the significant opportunities by understanding consumer motivation and incorporating that information into sales discussions.
Michael Babikian, JD, LLM, MBA, is Executive Vice President, Chief Marketing Officer for Life & Protection Brokerage, a marketing unit of Transamerica Life Insurance Company.
1 Mitchel, James O., “Financial Advisors Serving the Affluent,” LIMRA, 2010
2 Douglas, Jennifer, and Kallenbach, Scott, “Consumer Sentiment Tracking Study,” LIMRA, Oct. 2010
3 Mitchel, James O., “Impact of the Recession on the Affluent,” LIMRA, January 2010
4 Industry Estimates, LIMRA, 2012