With an estimated $10.2 trillion protection gap in the middle market, there appears to be enough life insurance business to go around. Conning Research and Consulting, which published its findings in a 2012 report, attributed the gap largely to fallout from the financial crisis and recession.
While the economy has had a significant effect, life insurance can be a tough sell even in a robust market. The reasons are familiar: people think life insurance is unaffordable, especially in light of housing, food and other immediate expenses; they don’t understand the products or how they can be used; and they don’t have a readily available or trusted source.
Compared to their more affluent counterparts, middle-market families may have an even greater need for protection. But even people who have shopped seriously for coverage still don’t buy.
Producers and insurance companies can overcome these barriers to sales, however, and help prospects see that life insurance can help solve one of life’s most pressing concerns — providing for loved ones when they die. Producers can also help them make insurance fit into their budget.
With the right approach, three of the major hurdles to sales — concerns about affordability, inadequate understanding, and a lack of contact from insurance professionals — can be surmounted.
Addressing the affordability issue
Many potential buyers assume life insurance is too expensive for them. In fact, it’s relatively affordable for much of the middle market, especially if term coverage is elected. Nonetheless, a 2012 LIMRA study, Understanding Life Insurance Buyers and Non-Buyers, found that of all non-buyers, 38% said a better price might have changed their decision. Nearly one-third — 32% — said they might have decided differently if the cost fit into their budget.
There are a number of ways producers can address the affordability issue. The first step is to stop focusing on price and start addressing needs. While affluent prospects and customers routinely receive a detailed needs assessment, that’s not always the case for the middle market. Providing a needs assessment also positions the producer as a knowledgeable advisor. Since the majority of shoppers are looking for information from a trusted source, producers earn credibility that can lead to sales.
Most fundamentally, a needs assessment helps the prospect identify goals and what’s most important personally and whether life insurance can be a solution to at least some of those goals. While the majority of people buy coverage for income replacement and final expenses, other reasons include ensuring their spouse and family can stay in their home or covering college expenses, among others.
A needs assessment can help address the affordability issue by guiding people to the most appropriate policy size. Appropriate policy size really depends a lot on where people are in their working life, the makeup of their family, and how long their family is likely to need income. For example, a 55 year old who only needs to replace 10 years of income requires a smaller policy than a 45 year old, earning the same salary, who needs to replace 20 years of income.
In addition, many insurance companies offer product features that can make life insurance more affordable. An example would be policies that allow clients to decide in advance whether to structure the payout in level amounts, which is a less costly option than a lump sum.
There is no doubt life insurance has become more complex over the past several years. There are more products offering a variety of riders, not to mention combination products. Even for professionals, it’s often an effort to keep up. For a layperson, the complexity can be overwhelming. Education and clarity are essential. If prospects already have reservations because of cost or other factors, a lack of understanding can be a reason to procrastinate or walk away.
One area that’s often confusing to prospects is the many ways life insurance can fit into their planning. It can be used for the common reasons, such as income replacement or final expenses, but it can also be used for business succession, retirement planning or wealth transfer. Even if people have a financial representative, it’s entirely likely he or she has not touched on the life insurance issue, and producers have to start from scratch in educating clients and prospects.
But education is just the first step to making a sale. Some people may have simple situations that are best addressed with basic term insurance, while a more complex permanent policy may be more appropriate for others, particularly people on the upper end of the spectrum. Some people may have specific needs that innovative riders can address.
For example, an elderly husband might be concerned his wife’s Social Security benefits will be reduced after he dies. It is difficult to create an understandable solution for this need with a traditional life insurance policy with a lump sum death benefit. If the producer has access to a life insurance policy with a spousal income rider that provides the wife with a lifelong monthly income stream to replace the lost Social Security benefits, the benefits align with the need in a very straightforward manner.
Connecting with clients
Unlike car insurance, many people say they aren’t presented with opportunities to buy life insurance. Job No. 1 for the producer is bringing those opportunities directly to prospects. If a life insurance producer also sells other lines, such as home or property coverage, one proven technique is to sell to existing clients. This is often a very fruitful strategy because there’s already an established, trusting relationship. Producers are also in a position to know when their existing clients are experiencing major life changes, such as becoming parents, buying a home or getting married, that are very often triggers for purchasing life insurance.
Producers can also team up with financial representatives who are interested in offering life insurance to their clients but don’t feel comfortable or aren’t interested in doing it on their own. These relationships can be very beneficial to everyone involved — the representative, the producer and the client.
Once the producer has identified good prospects, it’s time to deepen the relationship with face-to-face contact. Prospects may collect information online, but they usually still have questions. When it comes to sales, research has shown there’s no substitute for an in-person meeting. As always, however, the objective is to connect in a way that’s most comfortable for the potential buyer.
To encourage more contact in the middle market, carriers need to recognize that, while commission rates may be higher, commissions per policy are modest. This makes it important for carriers to help reduce the agent time per sale by providing good and simple tools and streamlined underwriting and administration. An insurance company can make needs analysis easier by providing a tool that quickly drills down to the client’s key objective (for example, income or Social Security replacement), tells the client how much insurance to buy, and points to an appropriate product and product options that meet the client’s stated needs. The needs analysis tool should also concisely summarize the reasons for the amount of insurance and type of product without using confusing language or jargon. A simplified issue underwriting process combined with an automated rapid issue process also can provide a satisfying and swift experience for both the client and producer.
Producers also should take advantage of channels, such as email marketing, that allow them to provide useful information periodically and stay visible for prospects who may be wavering but are likely to buy eventually.
Pursuing solutions, finding success
While there are undoubtedly hurdles to selling life insurance, there are also solutions. Three of the biggest issues — affordability, complexity and lack of contact — can be overcome by identifying needs and finding the best, most affordable solution, focusing on education and promoting understanding and clarity, and proactively connecting with existing and prospective clients in multiple ways.
Insurance companies can and should help with all of these hurdles by developing affordable products that more closely tie to clients’ needs, streamlining underwriting and administrative processes, and providing producers with simple sales tools.
The needs gap is huge. To be successful, life insurance professionals need to think of themselves not as salespeople, but as problem solvers. People don’t want to be sold a product; they want a way to meet their deeply felt need to protect the people they love most.
For more on the middle market, see: