The Life-and-Death Financial Decision You Don’t Want to Think About
(Bloomberg) -- Do you have a minute to talk about your death?
It isn't easy to sell life insurance. Investing in a mutual fund, you feel like you’re saving money. Purchasing insurance, you feel like you’re spending it.
“It’s not a pleasant thing to buy,” said
Yet millions of Americans don’t have enough insurance to protect their families from death or disability. Life insurance sales are dropping even as the large millennial generation starts having kids.
Blame, if you like, parents who can’t get their act together. Thirty percent of Americans know they need more life insurance, according to a 2015 survey by Limra, a trade organization.
But you might reserve some of the blame for the cautious and conservative industry itself. Buying the right insurance can be tedious and expensive. A recent report from
The insurance industry has demonstrated a "sluggish response to change," the
In the age of Uber and Amazon, insurance is still sold much as it was in the middle of the 19th century, when many of its largest purveyors were founded. Insurance companies have armies of agents stationed in towns across America. Their job is to get to know their neighbors–at the church, the country club, the
To many experts on personal finance, the whole setup can seem pretty quaint. In books and online forums, a top obsession these days is minimizing fees. “You can’t control the market,” the cliché goes, “but you can control your costs.”
Insurance agents, meanwhile, often charge fat, obscure commissions as compensation for the many hours it takes to find their customers. Even without commissions, insurers can make it hard to figure out the true cost of a policy or to do comparison shopping.
Insurance companies, like financial advisers, sometimes violate another modern taboo, against self-serving advice. In addition to selling essentials such as life and disability insurance, agents may be awarded commissions for selling various kinds of annuities, many of them so mysterious that the agents themselves can get confused.
In his classic investing guide, "A
Insurance’s image problem shows up in its sales results. In the past 30 years, the
The industry has tried to make up for the drop in individual life policies by focusing on more-affluent customers and selling them annuities and other complex products, in addition to the staples of life and disability.
"Life insurers have been successfully responding to change for generations," said
The standard advice on insurance, and it still holds, is that everyone should have disability coverage to protect against the chance they will no longer be able to support themselves or their families. You also need life insurance if you have financial dependents, with coverage several times your annual income. Experts usually recommend getting "term" policies – temporary coverage, only for the time when your children will be relying on you – rather than permanent, "whole" insurance coverage, which is usually pricier. The most convenient and cost-effective way to buy disability and life insurance is often through employers, who can get better group rates, though that coverage generally isn’t portable if you leave your job.
Maybe it's time for life insurers to change things up. McKinsey’s report urges the industry to rethink the way it sells its products and emphasize how insurance can help customers while they're still alive. One way is to link it with people’s retirement needs, including protection against medical and long-term care costs. Some policymakers in
Still, Schlifske is adamant that face-to-face meetings are the best way to sell the firm’s insurance and investment products. Like a personal trainer, “a human being creates discipline to get people to do what they need to do,” he said. Schlifske, 57, said he is disturbed by the American trend toward do-it-yourself financial planning.
“Many people in this country, maybe most people, don’t know how to achieve true financial security,” he said. “Everyone is kind of figuring it out their own way. They don’t know where they are. They don’t know where they’re going. They don’t have a road map.” And most people are never going to buy insurance without hand-holding, he said.
“We do have a perception problem that we’re battling,” Schlifske said. “But we know that when we sit down in front of clients and explain the value of what insurance does from a financial security perspective, we make headway.”
It's the sitting-down part the industry is having trouble with.
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