Fifteen trillion dollars -- this astronomical figure represents the unmet need for life insurance throughout the U.S., according to estimates from LIMRA.
The unmet need for life insurance coverage across the country has ballooned over the past 20 years for two primary reasons. First, the number of life insurance companies and advisers issuing the products has dwindled significantly since 1988.
According to American Council of Life Insurers, the total amount of life insurance companies declined to 814 in 2015, compared to 2,343 in 1988. Exacerbating the problem is the climbing U.S. population, which has grown to 319 million from 245 million over the same time period.
Secondly, and most importantly, purchasing a life insurance policy today is an invasive process that is time demanding and requires a significant effort from the consumer. Technology and online tools have made the application process for financial products like mortgages, car loans, mutual funds, etc. a much more simplified and streamlined process.
Many people applying for a mortgage can get approved in a single day. But the application process for life insurance products has yet to significantly adopt these time-saving online tools.
The combination of a limited adviser force with a difficult life insurance application process has festered for decades into the $15 trillion epidemic our industry faces today. These problems must be addressed to help get life insurance into the hands of more Americans. Here’s how we can do it.
Modernize life insurance acquisition process
As mentioned above, acquiring a life insurance policy is an invasive, arduous and time-consuming process for consumers today. Consumers are often required to schedule a house visit, receive a physical exam, take a blood test and supply a urine sample if they want to obtain a policy. From there, the insurance company must spend more time and money analyzing the data and running it through their underwriting models.
From start to finish, this process often takes two or three weeks. Consumers simply do not want to jump through these hoops. Not to mention, it can be difficult for life insurance advisers to economically justify this laborious and time-consuming process for smaller policy amounts.
At Penn Mutual, we’ve begun introducing a more streamlined process for smaller policies that does not require an invasive physical exam. For policies with up to $2.5 million in coverage, customers will be able to provide the information necessary by completing an interactive online inquiry, much like TurboTax or Rocket Mortgage.
However, the biggest difference from these services is that the process is not fully automated, and the life insurance adviser is there to assist the customer every step of the way. It’s the best of both worlds.
This modernized system vastly reduces the friction of acquiring new business and has the potential to put life insurance policies into the hands of millions of more Americans.
Recruit more advisers
Modernizing the acquisition process will also attract more advisers to the life insurance business. As noted above, the total number of life insurance advisers distributing policies has declined dramatically throughout the past two decades, and the industry is in desperate need of new recruits.
I believe that reducing the friction of acquiring new business by way of the modernized acquisition process will entice more advisers to consider joining the life insurance industry. These online tools make the selling process much more efficient, vastly increasing their pool of potential customers.
A common misconception about adding technology to any industry is that it will belittle the presence of the human employees or take away jobs. However, this could not be farther from the truth in the life insurance business.
In fact, the selling portion of the equation is left exactly the same, and advisers still need to reach out to people and get the ball rolling. It’s only the buying aspect of the process that is simplified as a result of the introduction of new technology. Advisers are still very much needed to make connections and assist the consumer throughout the process. Life insurance is still, and will always be, a people business.
Educate benefits of permanent policies
When deciding between a term and permanent life insurance policy, the lower costs of term policies are often enough to entice customers. However, consumers often do not think about the future reacquisition costs of applying again once the term expires. This often leads to gaps in coverage as consumers either decide to put off purchasing a new policy, or decide they no longer can afford it.
While more expensive up front, permanent policies cover consumers for the entirety of their lives and offer a number of living benefits. For instance, with permanent life insurance policyholders can accumulate money within the policy on a tax-deferred basis and then pull from their cash value when it becomes time to retire, to supplement Social Security*.
The money within a permanent life insurance policy (its cash value) can also be used as a vehicle to save for college tuition, start a business, or any number of financial goals.
As the insurance adviser, your expertise helps make these benefits known and understood by your customers. It can go a long way in ensuring Americans are protected for life by eliminating any gaps in coverage.
By modernizing the acquisition process, recruiting more advisers and educating consumers about the benefits of permanent policies, we can address the $15 trillion unmet life insurance need facing our country. Bit by bit, we can arm more Americans with the protection they need.
*Accessing cash values may result in surrender fees and charges, may require additional premium payments to maintain coverage, and will reduce the death benefit and policy values.