Closing the middle-market insurance gap

To take advantage of the huge sales opportunity represented by an underinsured middle market, producers need to break down a few common misperceptions.

More Americans are underinsured than they were a decade ago, and nowhere is the coverage gap larger than in the middle market.

This is a significant problem for the life insurance industry, but it also represents one of our biggest opportunities going forward. There are billions of dollars in potential annual premiums that lie untapped. The challenge is to create flexible, innovative ways to reach middle-market customers and help them get the kind of financial security and peace of mind they need.

LIMRA defines the middle market as those households that have between $35,000 and $100,000 in annual income. Last year, the industry association estimated 35 million middle-market households were underinsured, although half of that group was considering the purchase or expansion of life insurance coverage.

There are a number of factors that contribute to the middle-market insurance gap. One is that individual life insurance ownership is at a historic low. This is a trend that has been playing out over decades and is due to two factors. For one, fewer people are selling life insurance. And for two, those that do sell coverage usually have other financial products that meet retirement planning and investment needs, so there is less time spent explaining how life insurance works and how it benefits families.

Another factor is the economic downturn, which has changed priorities for many middle-market households — or at least changed their perception of what priorities should be in the short term. LIMRA research shows the top two reasons for not buying life insurance are that potential policyholders don’t think they can afford coverage or they have other pressing financial needs, such as reducing credit card debt, paying their mortgage or rent, or saving for retirement.

Despite these trends, the value proposition of life insurance hasn’t declined. In fact, you can make the case — and we should all be making it — that hard times make life insurance protection more valuable than ever. Nothing can push a family into a financial crisis faster than the unexpected death of a breadwinner with little or no life insurance to provide support.

To close the underinsured gap in the middle market, the industry needs to clear up misperceptions about the cost and necessity of life insurance coverage. It needs to take a more tailored approach to different groups within the middle market so those messages are heard more clearly. And it needs to step away from the focus on permanent life insurance and other products that may be more suitable for wealthy customers. It should concentrate instead on affordable life insurance options that can get middle-market families the kind of coverage they need to weather financial uncertainty.

Dangerous misconceptions

Let’s talk a little about those misperceptions. One thing that’s striking is how badly consumers overestimate the cost of life insurance coverage. Asked to name the annual premium for a 20-year, $250,000 level-term policy for a 30-year-old policyholder in good health, Americans estimated $400 — or more than twice the actual $150 annual cost, according to a joint LIFE Foundation/LIMRA report this year.

We need to be more successful in conveying the affordability of coverage, and that requires some creativity and knowledge about the kind of customer with which we’re dealing. Gen X and Gen Y consumers, for example, might be more comfortable getting information online or through social media. That puts a premium on having clear, easy-to-navigate educational websites and responsive social media platforms. Women may require more concrete information before they make a decision on coverage, so we may need to consider seminars, webinars or face-to-face meetings.

Fortunately, the benefit of sitting down with a financial professional remains compelling across age groups in the middle market. And it makes sense for advisors to make that connection, since LIMRA research shows life insurance can be a bridge to other financial products. But advisors can’t make the mistake of viewing the middle market as a monolithic block. One size doesn’t fit all; you need a segmented approach.

We should also admit we’ve been selling too much permanent coverage to the middle market. Consumers who feel they’re choosing a policy for life can be overwhelmed with the idea that they have to make the right decision. It can be a recipe for paralysis, particularly if they don’t understand their options well in the first place.

Needs change; so do products

To demystify life insurance, we need to be able to have a conversation with a client where we say, “You may not need life insurance for your whole life, and your needs are going to change.” And that’s where an emphasis on term life is key. A policyholder with a young family may need a certain level of coverage that can provide enough support for income replacement, college funds for the kids, and other expenses down the road. An empty-nester couple near retirement needs a lot less — and may not need coverage at all after retirement if they have adequate savings.

The industry is coming out with new products to reflect this changed emphasis. These products often provide coverage up until retirement and may include premium waivers in the event of unemployment or disability. Incorporating these kinds of safeguards against financial reverses is really what life insurance is all about, and this is the kind of approach that drives home the point that coverage has to be part of sound financial planning.

The way to crack the middle market is simple but not easy: know your customer, find the right message and delivery method to resonate with different segments, and come up with products that address new financial realities. There’s a lot of opportunity for agents, financial advisors and insurers who can come up with those solutions.

By Mark Hug for the October 1, 2012 issue of Life Insurance Selling

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