Myth: Older Americans don't buy life insurance

By Brandon Roberts

The Insurance Pro Blog

We can infer a number of things from pieces of data, but we can not answer everything. What we do know by virtue of this data is that older Americans buy permanent life insurance (universal life, at least) just as much as younger (pre-retiree) Americans. There is a much higher expense related to this purchase, but despite that higher price, they still do it.

Life insurance producers have probably run into the occasional challenge regarding the prudence of owning life insurance later in one’s life. Those who feel all of life’s personal finance problems are answered with a Vanguard ETF are quick to forward the notion that life insurance is a transient need necessitated by the period between the first day you show up for work as an adult to the point when you become a millionaire investing in the stock market. Once you’ve arrived at a seven-digit account balance, you can self-insure and stop wasting money on those pesky insurance premiums.

But there are those of us who would take on a counterargument to this claim, and that counterargument can take shape in a few different directions. We could argue that not everyone becomes a millionaire. Of course, the snide marketeers will come back at us with the claim that if people would just listen to them, they would be.

We could take them on with the notion that life insurance provides certain leverageable benefits that can enhance one’s overall ability to create, grow and protect wealth. And this argument forces the marketeers into a slightly more advanced discussion, but it often ends in their shouting some obscenities about fees and low returns. Not that they can actually substantiate their claims, but then again, you don’t have to be correct to win an argument; you just have to confidently state your case and yell loudly when necessary.

But in truth, logical arguments are of relatively little use to us when it comes to this subject. You can build whatever model you want about how people are supposed to live their lives; whether they listen to you or not is a different story altogether.

You see, despite popular sentiment among a certain market-investment-heavy crowd of the personal finance field, the notion that life insurance can be skipped by those who have received the gold watch and headed to Florida doesn’t appear to agree with descriptive statistics regarding life insurance buying trends (i.e. for the most part, America isn’t taking their advice).
Need, want — Doesn’t matter, they buy it

Every year, Milliman, an actuarial consulting group, releases data on universal life insurance buying trends. The report itself is lengthy (80 or so pages) covering a multitude of various topics. Within this report, one can find data on new business purchases by age cohort broken down by death benefit and by premiums. And every year, this age breakdown data tells the same story. Older Americans buy just as much life insurance as younger Americans. But not surprisingly, these older Americans pay way higher premiums to purchase this life insurance.

Here’s some data from the report:

Notice that the cohorts are fairly evenly distributed regarding breakdown of total in-force death benefits. There’s slightly less total death benefit in force from those who are younger, and the largest group is the 65- to 74-year-old crowd. If we combine everyone 65-years-old and older, we are talking about 31.7 percent of all the in-force death benefit for universal life insurance. And the U.S.Census data tells us this 31.7 percent is an almost-perfect match for the cohorts actual breakdown of the entire U.S. population (i.e. this 31.7 percent is neither an over nor under-representation of the cohorts actual percentage of the entire population of the United States — more on this later).

The second pie chart shows us the premium breakdown among the cohorts. There’s nothing particularly shocking about this chart from an intuitive point of view. Even the least skilled among us knows there is a relationship between cost of insurance and age, and there’s no surprise that the younger cohorts are paying much less.

But if we go back and look at the first pie chart for a second, it's worth noting that despite making up just 31.7 percent of all outstanding in-force death benefit, the 65+ crowd is paying 61.2 percent of all premiums collected. In other words, the death benefit that they are putting in force is twice as expensive as the rest of the population.
Someone is finding value in it

It’s obvious that Americans are not dropping life insurance coverage as they age. I should mention quickly that this data from Milliman is gathered from major U.S. carriers whose principle business is fully underwritten life insurance (i.e. this data does not include sales of traditional final expense policies).

Whether these people are buying it because they think they need it or because they’ve found value in it is irrelevant; what matters is that they buy it.

Sold and not bought?

The aphorism that life insurance is "sold and not bought" once used by sales managers to motivate their agents has been turned on its head by the less insurance-friendly crowd to pejoratively suggest that products only get sold because pushy salespeople force the product onto unsuspecting individuals. So it follows that some might suggest this data is more a function of aggressive sales tactics from unscrupulous agents who know that older people have more money and have to spend more money to buy life insurance.

While I’m sure this exists, just as it exists for all age cohorts in some fashion, remember the point from above about how the breakdown matches the underlying population. If there were a concerted effort in place to sell older people life insurance because it was more profitable or what have you, we’d look for evidence of this. Such evidence could come in the form of a disproportionately high amount of total face amount among this crowd, but that’s not the case at all.

We can’t answer everything from one statistic

We can infer a number of things from pieces of data, but we can not answer everything. What we do know by virtue of this data is that older Americans buy permanent life insurance (universal life at least) just as much as younger (pre-retiree) Americans. There is a much higher expense related to this purchase, but despite that higher price they still do it.

Intuitively, those of us whose primary business is writing life insurance already know where the value is. And the statistics hint at the notion that Americans agree with us more than they agree with a certain other crowd.