Our fellow Americans know they need life insurance, but that doesn’t mean they’re buying it. As LIMRA relayed in a recent press release about its 2014 Insurance Barometer Study with Life Happens (formerly the LIFE Foundation), and as is consistent with prior years, “…65 percent of consumers agree that they personally need life insurance and one in four (27 percent) believe they need more…The most commonly cited reason survey respondents provide for not purchasing more is cost (63 percent cited ‘too expensive’) followed next by having ‘other financial priorities’ (59 percent).”1
Yet misperceptions abound about the cost of life insurance. As Maggie Leyes, vice president of content strategy for Life Happens, blogged on the organization’s website following the release of the study results, “Get this: When asked the price per year for a $250,000 20-year, level-term life insurance policy for a healthy 30-year-old, the median cost given by those 25 and younger was $1,000—nearly 10 times its actual cost of $150 a year.”2
So, what’s a broker to do for clients or prospects who know they need life insurance but who have balked about paying the premiums? Term life insurance has long been a go-to solution for a modestly priced, guaranteed death benefit. But even with the typically lower premiums for term life compared to permanent life policies, one size doesn’t always fit all.
There’s simply no reason for clients to pay for more coverage than they need, because today it’s possible to help them customize with highly flexible term life policies. Whether their goal, in the event of their unexpected death, is protecting their families until retirement age, paying off a mortgage, or helping to ensure that their kids can attend college, they can utilize a laddering strategy to buy only the exact amount of coverage they need.
Laddering, as a reminder, means matching durations of a financial product with client needs. For example, instead of offering one single, large term life policy to meet the client’s longest possible need, you would tailor the coverage, matching smaller policies to individual needs.
Here’s how laddering works:
• Identify the client’s needs.
• Determine how long the client will need coverage.
• Determine the amount for those needs.
• Advise the client to buy multiple, smaller term policies that match the needs exactly instead of one larger policy.
By laddering the policies, your client can purchase the appropriate amount of coverage in a cost-effective way. This can enable the consumer to (for example) utilize multiple term policies to match a current mortgage duration, provide coverage until the kids are grown and gone, or until retirement at the age of 62, 65, 67, 70 or whenever.
Let’s imagine that your client calls and wants a 30-year term policy with a $1 million face value. Larry, age 39, has two children, ages 5 and 8. He wants to purchase life insurance to provide for his family in the following situations:
• $250,000 of coverage on himself until his youngest child reaches the age of 21.
• $500,000 of coverage until retirement at age 62 to protect his family’s income needs.
• $250,000 of coverage to pay off his mortgage, which has 27 years remaining.
That means he needs $250,000 for 16 years; $500,000 for 23 years; and $250,000 for 27 years. Larry could buy a single $1 million policy, but the closest available term period offered by some life insurance carriers would be 30 years. Instead, it’s possible for him to buy a separate policy for each of his three situations.
By structuring his life insurance on his terms, Larry may potentially save several thousand dollars, if he were to drop the 30-year policy after 27 years. This example is not an actual case, of course; it is used for illustrative purposes only and assumes that each policy is kept in force for its full level-premium term period. Also, as you would likely expect, premiums vary by carrier, product, underwriting classes, ages, payment plans and other factors (and some conditions apply)—but the point is, the laddering strategy is designed to efficiently utilize the client’s budget while providing money for each child to attend college, covering the remaining amount of the mortgage, and providing income protection until retirement.
However, all term life policies are not the same, despite the highly commoditized nature of term products. When considering a term life laddering strategy for clients or prospects, closely review the carrier and product attributes. Among the attributes you may want to look for are:
• Competitive 15-, 20-, 25- and 30-year term classes
• Many available durations
• Technology
• Convertibility
• Extended ages and durations
• Competitive rated case pricing
• Competitive pricing for cases greater than $1 million
• An intuitive Web tool that supports a simplified submission process.
Look, as well, for innovative riders that are offered with certain term life products. For example, it’s possible today to attach a select income rider to a term policy to provide clients with a guaranteed benefit of $500 or more per month for a specified time period, to supplement the lump-sum death benefit. Keep in mind that all guarantees are backed by the claims-paying ability of the issuing insurance company.
That type of payout structure certainly seems to merit consideration. An optional income rider may be extremely beneficial in helping families manage their monthly cash flow after the death of an income-earning parent. What’s more, there’s no rocket science to it; the rider is easily put into place and has the potential to mitigate worries over money management.
Truly, isn’t that what we are all in this profession to do—help provide clients protection, guarantees, flexibility and peace of mind?
Footnotes:
1. “Millennials, Younger Americans Continue to Show More Anxiety About Common
Financial Planning Issues than Older Generations,” LIMRA, April 7, 2014,
accessed April 29, 2014, www.limra.com/Posts/PR/News_Releases/Millennials,_
Younger_Americans_Continue_to_Show_More_Anxiety_
About_Common_Financial_Planning_Issues_than_
Older_Generations.aspx
2. “Our Views on Life Insurance and Finances—In Tweetable Facts,”
Life Happens, April 10, 2014, accessed April 29, 2014, www.lifehappens.org/blog/author/mleyes
