LIMRA estimates the shortfall between the life insurance benefits that are needed and actual life insurance owned is $16 trillion with life insurance ownership at a 50 year low. Some reasons given for the decline are the growth of alternative financial tools for asset accumulation competing with life insurance, the growth of two-income households encouraging the belief that a surviving spouse wouldn’t need life insurance, and a shift towards term insurance that lessened the incentive for agents to actively sell life insurance. None of these reasons are going away. It isn’t all doom—LIMRA also says whole life policy sales for the first half of 2015 were running 9 percent ahead of last year. However, many of those that most need the protection of life insurance aren’t buying it. What can be done?
Part of what can be done is being done. Carriers and industry associations are continuing to work on educating the public on the need for insurance. Showing the dollar and cents reasons for buying life insurance does result in sales when a lack of education is the stumbling block. In addition, raising the question of how to replace income if a breadwinner dies does attract some buyers. The main problem is almost all of industry and carrier messages about the need for life insurance are both generic and wimpy. To be more effective, they need to be targeted and emotional.
A typical life insurance ad has soft music where the man or woman is walking through the leaves with the announcer asking “How would you protect your loved ones if you’re no longer around?” Instead, picture this: the man or woman walking through the leaves steps off the curb and gets splattered by a bus. The announcer says, “You just died. That means your family just lost your $50,000 income. Okay Einstein, how are they going to survive now? Life insurance-because you might get hit by a bus today.” A great magazine ad would have a filthy urchin weeping in a cardboard box in some alley with the tagline “Why didn’t Daddy love me and buy life insurance?”
Both of these use affective approaches and affective (playing to emotions) messages work. Targeted framing messages also work. It’s something like “You just bought a home with a $200,000 mortgage and a $1000 monthly payment. For $10 month you can have that mortgage paid off if you die. Where else can you get a 100 to 1 payoff?” The approach targets a very specific need and provides a very specific solution. So the message is not “you might die” it is “you are age 32 and have a 6-year-old child. The studies say it costs $325,000 to raise a 6-year-old child and pay for their college. For $22.87 a month you can get life insurance that provides $325,000.” The foes say targeted approaches are bad because they exclude people, but you’re not trying to attract people, you’re trying to attract a person that will buy the insurance.
The affective and targeted approaches will get a few more people to buy life insurance today, but they won’t turn the tide. Frankly, the most effective way in the future to increase the societal ownership of life insurance is to do a better job of attaching life insurance to other financial products. When the individual gets a credit card, opens a bank account, gets car insurance, etc. they also buy a life insurance policy. If the life insurance cost is not built into pricing of the main product, then the buyer is automatically charged a premium unless they opt-out. This “nudging” approach has proven effective in employer offered group insurance, with high percentages of employees buying additional coverage if it is presented in an opt-out fashion. America and Americans need more life insurance; a little nudge may be all it takes.
