Can Americans no longer afford insurance?

By Ed Morrow

Intl. Assoc. of Registered Financial Consultants

According to the Life Insurance Marketing Research Association (LIMRA), sales of individual life insurance have declined sharply. Annualized premiums plunged 20 percent in the second quarter of 2009, and for the year to date, sales have fallen by 23 percent. In a statement, LIMRA senior analyst Ashley Durham called the drop-off the "steepest six-month decline since the second half of 1942."

LIMRA blamed the decline on both the economic malaise and a reduction in sales to seniors, "which tend to be higher face amounts and represented more than half of annualized premium sales in 2008."

The sale of variable life policies, which have the closest link to the securities market, were hardest hit, freefalling approximately 50 percent for the second quarter, and 55 percent for the first six months of the year. This reflected a general concern of purchasers on investing more funds into products tied to the stock market, which has been in a general decline from 2007 highs.

Meanwhile, universal life sales dropped 29 percent for the second quarter of 2009 and 27 percent for the first half of the year. This is the fourth consecutive quarter of double-digit declines, according to LIMRA statistics. However, whole life and term life insurance fared much better. Traditional whole life sales slid by only 3 percent in the second quarter and 4 percent for the first half of the year.

Term insurance also dipped a mere 3 percent for the second quarter and the first half of the year. These products represent about 28 percent of the market, measured on the basis of new premiums issued.

What is of greater concern is the continued drop in the overall sale of policies by number of contracts issued. America is reacting to current market and political conditions in a fashion that places far less reliance on the purchase of life insurance to resolve the issues of risk management.

What is happening?

What is the implication of this trend? Why should it distress life agents, insurance executives, and also every personal financial advisor? Is the need for life insurance dropping? Are policies less effective in addressing consumer needs?

Let's take a look at the trends in the United States in the past 25 years, since 1984.
  • Is the population lower? No! In fact, the U.S. population has increased over 30 percent in the past 25 years, from 236 million to over 307 million.

  • Is the population no longer of insurable age? No! The median age of an American is 36 -- an age where life insurance needs are high, and insurability is extremely likely.

  • Can Americans no longer afford insurance? No! The median household income, according to the U.S. Census Bureau, is $60,374.

  • Are those offering life insurance less qualified? No! A greater portion of those offering (selling) insurance are now holding one or more designations, indicating their understanding of the need for and appropriateness of life insurance.

  • Is the cost of living down in such a fashion that families and businesses actually need less insurance? No! The cost of living (as measured by the U.S. Consumer Price Index) has risen 107 percent in the past 25 years.

  • Have government programs increased to the point that the needs for insurance have declined? No! Not only are the benefits under Social Security less (on a proportional basis as a percentage of the amount of consumer needs) but the benefits offered by employers have also reduced as a percentage of income or need.
So what's the problem?

There is no absolute answer, but there are certainly several reasons why Americans are buying a lot less life insurance than they need:
  • Citizens are accepting less personal responsibility for covering the needs of their family members.

  • Citizens are relying more on government, in a false assumption that the government programs are actually going to solve their problems.

  • The life insurance industry is hiring and training far fewer life agents.

  • The financial planning industry is placing far more emphasis on investments than on insurance needs.

  • There is a significant aging of the population of life agents and financial advisors, and they are now focusing on their age peers, who are more concerned about their investment needs, rather than on the need for income replacement in the event of death or disability.

  • Financial advisors and life agents are taking the "easy" sales of fixed and investment products, rather than on the more stressful "emotional" sales that involve a discussion of death, dismemberment, disability or incapacity.
None of the financial services institutions (MDRT, SPSP, IARFC, NAIFA or FPA) have backed away from their endorsement of the needs for life insurance to solve a myriad of financial problems. Each has supported continuing education programs and conferences that emphasize the need for life insurance and provide support in its continued application.

Moreover, the (Life Insurance Foundation for Education LIFE) has diligently carried the message to the consuming public about the needs for insurance and the benefits of its features.

Is there a solution?

To address this national insurance malaise is a difficult undertaking. First, one would need to address each of the reasons for the reduction of insurance purchasing (and there are certainly additional reasons to those listed above.) Then, the various parties would need to carry out plans to change this trend.

Is it important? Yes. Because life insurance allows individuals to address their own areas of risk exposure, rather than place an unwarranted reliance on increasingly ineffective government programs.

Life insurance is also a fundamental assembler of capital that is then reinvested in commercial ventures. Unless we really wish to abandon the capitalistic system of commerce, then we must support the non-governmental methods of funding business expansion. The traditional financing of residences, farms and businesses by the insurance industry has been far better managed than the government-sponsored Fannie Mae and Freddie Mac that placed us in this economic crisis.

There needs to be more cooperation, and less competition, between insurance companies, and commercial banks and investment organizations. In fact, this should be easy, since so many organizations now consist of all three forms of capital gathering and reinvestment activity, merged together in a conglomerate holding company.

There needs to be far more support of LIFE and its mission to help the citizens understand their risks and that insurance offers a practical and affordable solution.

The financial plan of every American should be reassessed with regard to the adequacy of the insurance needs. Have they been calculated accurately? Has the advisor sufficiently stressed the private insurance solutions and their effective way of solving several problems with the same instrument?

The life insurance companies need to increase their recruiting and training commitments -- looking at long term success rates. They need to bring more young people into the lifetime of personal financial service.

And unless we are willing to relegate this to the government (who has done such an outstanding job with the mortgage and securities markets), we need to be addressing these issues now.

What can you do?
  • Encourage more young people to enter the field of financial planning. This might include your children or grandchildren -- or those of your clients.

  • Offer internships in financial planning to students in your area. This can be very effective when they are enrolled in a financial services curriculum.

  • Whenever possible, stress to the executives of insurance companies and broker/dealers the need to recruit younger people and emphasizing the sale of life insurance.

  • Conduct an "insurance review" with all your clients. Even if they no longer have the needs for coverage or can no longer qualify, you still might sell contracts to them on the lives of younger family members.
For more information on LIFE, which is headed up by Marv Feldman, CLU, RFC® please see

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