Vast Middle-Market continues to challenge industry’s efforts to serve it
by David WilkenMr. Wilken is Head of Life Distribution for Voya Financial’s Insurance Solutions Business. Visit voya.com.
September is Life Insurance Awareness Month – an opportunity for us to impress upon consumers the need for and value of life insurance – but also a chance for carriers and brokers to assess the well-being of our industry, and discuss the challenges and opportunities we face in selling our products. Arguably, no target market presents more challenges – and opportunities – than middle market consumers.
According to LIMRA’s recent report, “U.S. Consumers Today: The Middle Market – 2014 Data,” the middle market is defined as households with incomes from $35,000 to $99,000. This population has been referred to as the “holy grail” of the insurance industry, and with good reason given the middle market represents 52 million households in the United States.* Many in this group are underserved and underinsured.
Challenge – 54% still don’t own it
Insurance companies have invested a significant amount of time, money and resources in trying to determine what makes middle market consumers tick, yet we’ve still only managed to scratch the surface. First and foremost, middle market clients need the death benefit protection of individual life insurance to help protect assets they’ve accumulated over a lifetime. However, advisors that only present term insurance as an option to young families are missing out on an opportunity for their clients to leverage an incredibly useful tool.
According to 2014 LIMRA data, 57 percent of low-middle-market households and 41 percent of high-middle-market households said they would need to borrow money from other sources to cover a $5,000 financial emergency.* Ideally, we’d hope that every consumer has access to, and is taking advantage of products like critical illness or accident insurance through the workplace. If not, the options for emergency funds once a client has depleted their savings are limited and, in some cases, financially disadvantageous. Cash advances on credit cards are subject to high interest rates and outstanding debt could be passed onto heirs. Borrowing from a 401(k) reduces one’s potential retirement income, and also results in a “double dipping effect,” as further contributions are not made while the loan is repaid.
Started early, cash value life insurance can provide middle class consumers with an emergency cash reserve later in life, which can be accessed, tax-free within days at a very low interest rate. Cash value policies are also self-completing, so a client that suffers a health emergency near or in retirement can access emergency funds without running the risk of passing on debt to his or her heirs.
Emergency situations often require quick decision-making, but borrowing too much money from a cash value policy before it has matured could result in a large (often unexpected) tax bill from the IRS. To avoid this, a select number of life insurance companies have taken an extra step in consumer education with the creation of concierge services, which work with clients to help them understand when and how much they can withdraw from their policy without it lapsing.
Opportunity – 60% prefer face to face
We must not overlook this tremendous and unique opportunity, which is afforded to a very small universe of businesses in today’s fast-paced, social media-driven environment. While every generation has their own definition of the ideal insurance shopping experience, industry data shows that many people still want to make their final purchase in person.
The ability to meet face-to-face with consumers that are already interested in purchasing life insurance allows advisors to present options that best align with their clients’ retirement readiness strategy. Financial advisors that are educated about the accumulation, protection and distribution benefits of life insurance are able to help young, middle market families by recommending products that can provide supplemental retirement income which can be used for any purpose, while simultaneously keeping them on track to achieve their financial goals.
Challenge – More than 50% have $10,000 in non-mortgage debt- and they’re not saving
On one hand, it’s extremely difficult to urge consumers to take on a monthly life insurance premium as they struggle to pay off debt or meet regular expenses. On the other hand, it’s fair to argue that the middle market needs life insurance more than any other population. At a time when families are just starting out, and dollars are precious, most individuals would appreciate the opportunity to fund a life insurance policy for a dual purpose – protecting the assets they have accumulated over a lifetime AND building cash value for retirement.
LIMRA’s consumer study cited that building an emergency fund, paying off or reducing debt and saving enough for a comfortable retirement are among the top financial goals of middle market consumers.* Life insurance is one of the only products available that can help your clients accomplish all three.
Opportunity –75% want a savings strategy
Thirty seven percent of middle market households have children under the age of 18.* For many of these families, college tuition payments are right around the corner. We’ve discussed how a cash value life insurance policy can protect a family’s retirement savings by providing access to emergency funds later in life. Another under-utilized application of these policies, which may be compelling and relevant to middle market families, is paying down student debt.
Every family that requests financial aid for their child’s education will have to complete the Free Application for Federal Student Aid (FAFSA). In filling out this form, parents list (among many other financial sources) their “included assets,” which the Federal government will use to determine how much aid each child will receive. While college savings plans, mutual funds and various other investments are included in a family’s net worth, cash value life insurance is not considered an “included asset.”
This means savvy parents (or those with savvy advisors) who purchased a cash value policy earlier in life, could potentially qualify for financial aid based on the value of their included assets, then leverage the tax-deferred growth of their life insurance policy to pay tuition or student loans as they near or enter retirement.
Challenge – Lack of education breeds suspicion
Clients nearing or in retirement may not be able to realize the full potential of cash value insurance policies. It’s incumbent upon carriers to stress that message with their distribution partners, and for advisors to stress that message with their clients. However, an advisor would be remiss in not presenting a cash value policy as an option, specifically for clients in their 30s or early 40s that are already interested in purchasing life insurance. Middle market consumers in this younger age bracket would be hard-pressed to find another product that allows them to protect their savings while simultaneously building wealth for retirement and providing them with access to emergency funds later in life, when they are more likely to experience a health event.
Opportunity – They’re asking you to listen
While the majority of Americans conceptually understand how individual life insurance can help them safeguard the financial future of their loved ones, carriers and advisors are now faced with the challenge of converting those that “know” to those that “do.”
According to LIMRA’s report, the three most important characteristics that middle market consumers look for when selecting a financial advisor are “the ability to listen to their needs and make appropriate suggestions, a willingness to explain and educate them, and a willingness to take the time to establish rapport so they can work with someone they feel they can trust.”
While the death benefit of life insurance plays a significant role in asset protection, this is only part of the story. It’s imperative for advisors to show clients the full potential of life insurance. A careful assessment of each client’s unique needs will reveal if and how a cash value life insurance policy, started early, could be an effective way to help that individual build a secure financial future, and enhance their overall quality of life to and through retirement.
*All cited data in this article references LIMRA’s report entitled “U.S. Consumers Today: The Middle Market – 2014 Data.”