Newest Baby Boom Good for Life Insurance

More babies means greater demand for good old-fashioned cash-value life insurance. Young couples tend to buy life insurance to protect their families and babies are making a comeback.

In fact, what has been called a “baby bust” in the United States is now over, according to a January report from Demographic Intelligence, published by W. Bradford Wilcox, associate professor of Sociology at University of Virginia, Charlottesville.

In the wake of The Great Recession (2008-2012), the total fertility rate and the number of U.S. births fell more than 7 percent from 2007 to 2010, says Wilcox’s “U.S. Fertility Forecast.” The report projects that the total fertility rate will rise from 1.93 children per woman in 2010 to 1.98 children per woman in 2012. Also, the United States will register more than 4 million births this year.

Births are rising for at least three reasons, the report says. The number of American women in their prime childbearing years is rising, and many families are deciding to have children earlier rather than later, reversing a recent trend in the opposite direction. Americans put the ideal family size at 2.66 persons in 2010, up from 2.39 persons in the late 1990s.

“Many women put off having a child in the wake of The Great Recession,” Wilcox says. “Now, we think more women and couples have decided to go ahead and have a child—especially that second or third child that they put off at the height of the recession.”

Major findings of the report include:

• A rise in the number of births is expected to continue in 2012 and 2013. Some 4.06 million children were estimated to have been born in 2011.
   
• The Hispanic share of births has been dropping since 2007 for the first time in the tracking of U.S. birth trends. The share of Hispanic births was expected to drop from a high of 24.6 percent in 2007 to 23.4 percent in 2012.

• Births are rising fastest among college-educated women 30 years of age and up.

Wilcox adds that insurance companies should benefit from a particular increase in birth rates among the more educated and affluent demographic group.

Life insurance sales appear to be reflecting this trend. Total life insurance sales grew 4 percent in new annualized premiums in 2011, and insurers issued 2 percent more individual life policies than they did in 2010, according to LIMRA, Windsor, Conn. This is only the fourth time policy sales have risen in the past 30 years.

In addition, the MIB Group, Braintree, Mass., reports that life insurance applications were up 6 percent in 2011.

LIMRA expects that in 2012 and 2013, life insurance sales, based on annualized new premiums, should rise 28 percent. Generation Y, persons born between 1981 and 1995, will be entering their family years. Meanwhile, Generation Xers, born between 1965 and 1987, are spearheading the increase in households with young children. In addition, the U.S. Hispanic population is rising along with Asian immigration, according to a 2011 report by the Society of Actuaries, Schaumberg, Ill. and L.L, Global Inc., Windsor, Conn. The report is entitled “Guaranteed Uncertainty: Socioeconomic Influences on Product Development and Distribution in the Life Insurance Industry.”

As long as the economy continues to grow, the use of life insurance should grow worldwide, says J. Francois Outreville, finance professor with the International Center for Economic Research, Montreal, in a 2011 working paper. Longer life expectancies are important variables that lead to the purchase of life insurance, according to his study, “The relationship between insurance growth and economic development”

Although the economy is improving and people are buying life insurance, they are playing it safe with whole life instead of universal or variable universal coverage, LIMRA data suggest. Whole life premiums increased 9 percent in 2011 from 2010—marking the sixth consecutive year of positive growth.

Many are turning to whole life insurance because it pays high guaranteed rates of 3 percent—at least two percentage points less than the crediting rate paid on cash value. With whole life, families can build a nest egg they can tap through a policy loan if necessary.

“The biggest driver of individual life insurance growth was whole life,” says Ashley Durham, LIMRA’s senior research analyst. “It’s the only product to produce positive growth in each of the past five years.”

Premium and cash-value guarantees coupled with lifetime coverage, she says, alleviate leading concerns for buyers, which likely are compounded during times of economic uncertainty.