Wednesday, September 1, 2010

First, the Good News

It’s that time of year again. Every September the life insurance industry celebrates Life Insurance Awareness Month.

This year LIAM starts off with some mixed news. The good news is that for the second consecutive quarter, individual life insurance sales improved. In the second quarter 2010, total individual life insurance new annualized premium grew seven percent, resulting in a nine percent increase for the first six months of 2010, according to LIMRA's U.S. Individual Life Insurance Sales survey.

The not so good news is that the economic downturn has contributed to ownership of individual life insurance falling to a 50-year low, LIMRA, Windsor, Conn., adds.

The Trends in Life Insurance Ownership study, conducted every six years by LIMRA, found that only 44 percent of U.S. households have individual life insurance. The number of U.S. households that have no life insurance whatsoever is growing. Today, 30 percent of households (35 million) have no life insurance coverage, compared to 22 percent of households in 2004. Among households with children under age 18, which arguably have the greatest need for life insurance, 11 million have no coverage.

LIMRA says that more than 40 percent of Americans say a major reason they have not bought more life insurance is because they have other financial priorities right now, such as paying off debt or saving for retirement. However, it adds, the drop in life insurance ownership is not because families are not feeling vulnerable. Among households with children under 18, four in 10 say they would have immediate trouble meeting everyday living expenses if the primary breadwinner died today. Another three in 10 would have trouble keeping up with expenses after several months, according to LIMRA. Half of households feel they need more life insurance — the highest level ever.

But there is some more good news to supplement the second quarter results. The LIMRA study does find that 24 percent of households with children under 18 want to speak with a financial professional about their life insurance needs; and a quarter of all households plan to buy life insurance in the next year.

The first step that needs to be taken is to teach consumers about the value of life insurance. The point was driven home when a handyman who was doing some work for me asked what would be a wise way to save for his family. He had a young wife, a toddler and another one that was about to be born. His wife was pressing him to buy life insurance. I told him she was right. It wasn’t the answer he wanted. The job got done but I’m pretty sure the insurance policy didn’t get written.

The second step is to help people to learn how to buy contracts as Robert Kerzner, CLU, ChFC, president and CEO of LIMRA, LOMA, and LL Global, points out when he says that "as an industry, we need to reach out to consumers and educate them about the various ways they can purchase life insurance."

And, the third step is to make people comfortable with life insurance which means providing information when there are flare ups such as the current retained asset account issue. The industry has to provide information as it did during a recent public hearing at the summer meeting of the National Association of Insurance Commissioners, Kansas City, Mo. And, it has to stand ready to offer better disclosure or any other remedy available if regulators determine that better safeguards are needed. Or to work with state insurance legislators including state Rep. Robert Damron, D-Nicholasville, Ky., to help create a Beneficiaries' Bill of Rights, if that will bring more comfort to the consumer. Damron introduced the model as a response of the National Conference of Insurance Legislators, Troy, N.Y.

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