Teach Your Clients Well

Better Knowledge of Life Insurance Dynamics Can Lead
to Higher Ownership Rates

By Mark Hug

Ownership of individual life insurance is the lowest it’s been in more than a half century. That’s a big problem, both from an industry health standpoint and from the perspective of families who desperately need financial security.
How do we solve it? Not with any magic bullet, but by breaking the problem down into pieces. Knowing your customer, having the right educational tools and designing products that fit diverse needs are all winning strategies — and life insurance agents and financial advisors can play a key role in implementing them.
People who have a clear understanding of life insurance and their options when it comes to policies are more likely to sign up for coverage. It’s just common sense. Advisors can guide their clients better by taking several simple steps, such as:

Know the Market

Every customer comes to the decision-making process on life insurance with unique needs. From that perspective, designing a single, catch-all message to drive home the importance of coverage is not very effective in making a sale. The best way for an advisor to find the right fit for a policy is to sit down with a client and go through concerns, goals and resources.
Before you can get to that stage, however, you need to get a potential client in the door or on the phone. And to do that, you must have a good understanding of different segments (or cultures) within the life insurance market. A young, single Gen Y mom will have different needs, for example, than a retirement-age African-American couple. Successful advisors are attuned to variations in different communities, cultures and demographics, and use that as a starting point. Once you’ve convinced someone of the need for life insurance, you can design the right solution for that particular client.

Let’s look at some broad segments, all of which qualify as underinsured:

Women
A majority of women in Financial Experience & Behaviors Among Women (2012-13), Prudential’s latest research study on the topic, identified themselves as primary breadwinners in their family. Yet only 23 percent of women who identified themselves that way feel “very prepared” to make wise financial decisions, compared to 45 percent of their male counterparts.
What are the implications of that finding? A financial advisor can play a key role in shaping financial plans for female breadwinners. Asian-American women report the highest use of advisors, the survey found. African-American women rarely call on one, yet are open to the idea.
Young Consumers
It may sound surprising, but Gen Y, or consumers in their 20s and early 30’s, will surpass the purchasing power of the Baby Boomers by 2017, according to Serving the Life Insurance Needs of Young Consumers, another research report by Prudential. They also are more likely to see a financial advisor in the wake of the economic downturn than their counterparts in the Baby Boom or Gen X cohorts.
But assuming Gen Yers are like anyone else walking through the door is a mistake. In general, young consumers are open to life insurance coverage because of higher student debt loads than their older counterparts, an increasing prevalence of single parent families, and a perceived need of having to support their parents in retirement — any of which could create great financial distress if the Gen Y breadwinner were to die unexpectedly.
African-Americans
African-Americans have higher rates of ownership of life insurance than the general population, but there remains a “trust gap” to overcome for advisors, according to Prudential research. Debt from credit cards and high-interest loans are a top concern.
Advisors should also take note that 72 percent of African-American women say they are their family’s primary financial decision-maker, a higher percentage than other segments.
One positive note to draw from all three broad categories: there is strong awareness of the need for more life insurance coverage. One in three women say they don’t have enough coverage, according to a report this spring by the LIFE Foundation and LIMRA. The same research found that 41 percent of consumers age 25 and younger and 42 percent of African-Americans feel the same way.

Educate Your Potential Clients

Getting a life insurance policy should be simple. Most people want to know three things:

•  What type of coverage do I need?
•  How much should I get?
•  What does it cost?

But for many people, there’s nothing simple about arriving at answers. Misperceptions abound. The LIFE Foundation/LIMRA study referenced above found that consumers overestimated the cost of annual life insurance premiums by more than 2.5 times. It’s little wonder that 83 percent of survey takers called life insurance “too expensive.”
Deciding how much coverage to get is also a frustrating exercise for many people. There are formulas you can employ, but most are only really useful for high-wealth clients with a lot of assets. Most people can get by with more bare-bones calculations: How much does my family need to replace my income if I die, and over what time? And what kind of debts need to be paid? This can include student loans, mortgages, funeral costs, etc.
Educational websites can help lay the groundwork for educating clients, and many young people prefer to do their initial homework online. But when it comes to actually pulling the trigger on buying life insurance coverage, most people turn to a trusted advisor first. This can be a parent, a savvy friend (or even a not-so-savvy friend) or a mentor, but historically it’s been a life insurance agent or financial advisor.

. In some cases, they’re not talking about it at all — when we press people who are uninsured, many of them will tell us, “Nobody asked.”
If your goal is providing financial security for your client, ask! Saving for retirement is vital. Investing to produce extra income is smart. Making sure you have enough money set aside for your children’s education is laudatory. But all of these family financial plans can be undermined without the safety net of life insurance. We all know this and our potential clients know this, too. But they need guidance — give it to them.

Match the Policy with a Family’s Goals and Resources

Permanent life insurance can be an excellent product, but it’s not for everyone. We have millions of households in the middle market that are either underinsured or have no insurance, in part because people need better education about life insurance and in part because so many are hard pressed financially. Yet the short-term savings from not paying for a life insurance premium can lead to long-term financial disaster. Some coverage, even if it doesn’t fit the classic definition of complete protection, is far better than nothing at all.
Innovative insurers recognize this, and we are seeing more flexible policies being developed that incorporate real-world concerns, such as premium forbearance in the event of a layoff or disability. But in the end, even the best life insurance products can’t thrive without a trusted advisor who can help a customer make the right decisions on financial security.
How do you become that trusted advisor? There aren’t any shortcuts, but you can put yourself in a better position by following the steps I’ve outlined above. Take the time to know the marketplace and the characteristics of different demographics and cultures. Zero in on each individual family’s goals and concerns. Talk them through their options, and make sure you’re offering them the best policy for their situation — not necessarily the one that will yield the highest commission.
We have an underinsurance gap in America, but we can solve it with education, expert advice and innovative products. It’s a great opportunity for financial advisors who have a clear view of their customers’ needs and the expertise to find the right solutions.