CHICAGO – Researchers at LIMRA have uncovered a trillion dollar opportunity in life insurance sales, and it’s in the middle-income households who do not currently own enough life insurance.
That’s $1 trillion in face amount that producers and carriers might want to pursue or at least know about, according to Eric Sondergeld, who is one of the researchers who has been looking at the numbers.
LIMRA uncovered the opportunity by using a brand new model it has developed for quantifying the extent to which Americans are underinsured for life insurance, says Sondergeld.
Advisors might benefit from the model once their carriers begin using it to identify sales opportunities within the companies own life insurance market, says the corporate vice president for developmental and strategic research.
Sondergeld will debut the model during an early-bird workshop here today at LIMRA’s annual meeting. His presentation will cover closing the life insurance gap that previous LIMRA research has identified. Sondergeld shared a few details from his remarks in an interview in advance of his presentation.
The nature of the problem
Previous LIMRA research, published in 2010, had found that 30 percent of Americans have no life insurance at all, whether group or individual, he points out. In addition, that research found that 56 percent do not own any individual life insurance, which is the type of life coverage that many life insurance advisors sell.
Earlier LIMRA studies also found that, despite the low levels of ownership, there is a "high perceived need" for life insurance among many Americans.
The researchers put two and two together and decided it was time to start looking at what can be done to build on the perceived need and also to increase life insurance ownership among Americans. The result is the new model. It answers the driving question, "How much life insurance should people have?" says Sondergeld.
Many people do have group life insurance, he explains. But often times, the amount they have will likely not be enough to support a family whose breadwinner has died. Those breadwinners are the people who are uninsured. They have some life insurance, but not enough.
LIMRA sought to put some numbers on that population and the life insurance opportunities they represent.
To do that analysis, they needed a quantitative model, and they ended up building their own. Here are some of the elements they incorporated. They decided to:
- Study total life insurance ownership, not just ownership of individual life or group life
- Analyze and incorporate data on consumer finances which the government published this summer on its website
- Plug data into various life insurance calculators, and then build their own calculator to help them estimate the amount of insurance various demographics might need
- Limit the study to three basic and commonly experienced life insurance needs--income replacement, debt repayment and funeral expenses. Even without factoring in more specialized uses of life insurance—such as wealth transfer, estate protection, buy-sell agreements, and retirement planning—the model produced "some very large numbers" regarding Americans who are underinsured for life insurance, Sondergeld says.
- Subtract out from the calculations the investments that people already own, the government benefits they may have, and existing life insurance coverage.
"We did that to get to the gap," he says, reiterating that the purpose was to find out how much life insurance people actually need so they will no longer be underinsured.
The resulting model does not take into account whether people are uninsurable or if they consider life insurance to be unaffordable, Sondergeld allows, explaining that those factors are hard to test and measure. Still, he says the researchers consider the numbers that the model produces to be a "reasonable" projection of the underinsured (for life insurance) population in the U.S.
Eventually, member companies at LIMRA will have access to the model. They will be able to slice and dice the data or even make changes, to suit their companies’ needs, says Sondergeld. For instance, they could exclude a particular life insurance need, or zero in on a different demographic.
The $1 trillion opportunity that he mentioned earlier is the amount of underinsurance, by face amount, that the researchers identified for middle-income Americans nationwide. (Note: There is no breakdown by geographic region.) These Americans include those who are early- or mid-career (i.e., under age 45), and married with kids.
"There are 6.3 million American households in that demographic that have a gap," says Sondergeld.
Oddly enough, that particular group is fairly well-insured compared to the overall population. "Nearly four in five households in this group have at least some life insurance, and even a little more insurance than the general population," he says.
But these households often don’t have enough insurance to cover basic needs in event of a breadwinner’s death, he continues. He cites an earlier LIMRA survey, which found that 78 percent of consumers have "some" life insurance, but 60 percent said they needed more. In addition, 77 percent said their family would be out of money immediately or within a few months if they were to die.
The good news is that 35 percent of that survey group said they were "likely" to buy life insurance in the next 12 months, Sondergeld points out. However, he adds quickly, "I’m sure they didn’t — because most life insurance is not sought out by the person who needs it."
It takes a "live person" to help people make that happen, Sondergeld continues. That’s a live person, as in an insurance or financial advisor. The challenge, he concludes, is "how to get distribution in front of the people who need more life insurance, and how to convince people who think they don’t need life insurance that they probably do need it."
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