Does the 1 percent really need life insurance?

By Nick Paleveda MBA J.D. LL.M

National Pension Partners

One of the alarming trends in the United States is the concentration of wealth in the hands of the few. According to some studies, the bottom 60 percent of Americans have control of about 2.6 percent of assets. Meanwhile, the top 1 percent control 40 percent to 50 percent of the assets. Some studies have suggested the top 500 families own about 50 percent of the nation's wealth. What does this mean for life insurance sales?

First, many people cannot afford life insurance — and if they can, term would be all they can afford. The asset base and income just are not there to support universal life (UL) or whole life (WL) products. This may account for 60 percent or more of society, making it difficult if not impossible for life insurance agents to make a living selling life products.

Second, the individuals who can afford WL or UL have other pressing needs — student loans, house payments, car payments, cable TV, smartphones, just to name a few. This group also may opt out to term products as well.

Finally, the 1 percent — but do they really need insurance? Maybe not, but if it is deductible, then maybe so. However, life insurance generally is not tax deductible unless purchased in a qualified plan. They may need life insurance for estate purposes, assuming the net worth is over $10.5 million. Second-to-die life insurance will start decreasing as now the need is for the very, very few. This group is very small — .01 percent. The amount of professionals serving this group keeps increasing. In the United States alone, attorneys went from approximately 1 million in 2002 to 1,268,011 in 2012 (according to the American Bar Association). Likewise, financial planners, CPAs and others compete for this business. What is the result?

Life insurance agents' average age is over 50. New blood does not enter into the market as it is a compensation gamble and other forms of employment are available. If the trend continues, the average agent will be in his or her 60s in the near future.

And finally, with a lack of emphasis on family in the United States, more people look to the government for support. Without people who care for others, life insurance becomes a difficult product to purchase as we move toward a "me" society and away from a "we" society.