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By Cyril Tuohy
When it comes to selling life insurance, multiple generations living under the same roof present as many challenges as opportunities.
As many as 10 or 12 people belonging to an extended family means more lives to insure. The surge in demand could even mean that one day the same advisor will be called upon to craft as many as a dozen financial plans. But mothers, fathers, aunts, uncles, siblings and cousins living in the same home often mean individual family members don’t have much to spend, especially on life insurance policies.
The decline in sales reflects both budget limitations and spending priorities. To be sure, these priorities may not always make the most long-term financial sense.
Selling into a “packed” environment is what Mark Hug, executive vice president of product and marketing for Prudential Individual Life Insurance, calls a “budget sale.” Families don’t want to spend much on a life policy.
Allocating $50 or $100 a month toward such a policy in an extended family is often a tall order when there isn’t much extra income. “In a multigenerational budget sale, it becomes more difficult because either way it could put a stretch on the budget,” Hug said in an interview with InsuranceNewsNet.
The further the family budgets are stretched, the further down the priority list life insurance may fall. “That’s something we have to understand and learn from,” Hug said.
Growth in life insurance is stagnant. Even as premiums rose slightly, policy counts for individual life policies dipped 3 percent in the first half of 2013 compared to the first half of 2012, according to LIMRA.
Multigenerational households – although rising among whites – are more common among Hispanic and Asian families. Prudential will reveal more details of the Hispanic market Jan. 22 with the release of its 2014 Hispanic American Financial Experience Survey.
Life insurance is often far down the list of spending priorities. For example, consumers are frequently more apt to choose buying a car over making a monthly life insurance premium payment.
“When it gets down to life insurance, you wouldn't rate in a top 10,” financial advisor contributor Melody Juge said in an interview with InsuranceNewsNet. “Life insurance is low on the list.”
Multigenerational households, Hug said, feed demand for life insurance products with traditional death protection benefits, cash value and living benefits. In large households, the need for one of the benefits, or more, are present in one place, and perhaps even at the same time.
When divorced children return to the family home and elderly parents need care, the number of people living under one roof can double and triple in short periods of time.
Living benefits and access to those benefits via riders are examples of “the wave of the future for the life insurance industry,” she said. The industry’s been good at providing death benefits, but the time has come for it to find still more ways to offer living benefits.
Living benefits have been around for at least a decade. Nevertheless, there’s a spate of innovation taking place around living benefits to make individual life policies more flexible and appealing, particularly around the need to insure longevity risk, said Steve Roach, vice president of product management for Prudential Individual Life Insurance.
That’s when people live longer than they planned, and they need access to cash, or require coverage to help pay for a debilitating and expensive illness like cancer, or a manageable but chronic affliction like diabetes.
Over the past two years, many life insurance companies have introduced riders to pay for critical illness, chronic and long-term care. “Living benefits provide people with as much flexibility as possible, and in multigenerational households, it’s hard to anticipate (needs) in advance,” Roach said.
Selling life insurance to multigenerational households, which are often found in minority neighborhoods, is much easier when financial advisors grow up and settle in those neighborhoods. There’s plenty of new opportunity for advisors willing to devote their lives to those underpenetrated markets, and knock on the right doors.
The closer advisors are to their customers, the more consultative their approaches become and the faster they will pick up the nuances of an extended family’s dynamics and structure a policy to benefit the household, Hug said.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].