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Grow Your Practice While Helping Clients Shrink the Protection Gap

The recently released LIMRA 2016 US Ownership Study shows that 70 percent of U.S. households own life insurance. This study is released every six years, and the 2016 results are essentially the same as ownership levels in 2010. 

After a decades-long decline in life insurance ownership, this leveling off is encouraging news. Yet we still must ask: Do the people who need life insurance own it? If so, do they have “enough”?

These are tough questions, but the answers help us better understand the protection gap. Although there are many ways to figure out the size of the gap, LIMRA estimates there is a $16.5 trillion total gap in coverage, just accounting for traditional uses such as income replacement, debt repayment and burial expenses.

Our model suggests that two-thirds of the gap comes from the 34 million households who already own some, but perhaps not enough, life insurance. Those who don’t own life insurance but should — according to our model — represent another 39 million households. Combined, this means that three in five households are uninsured or underinsured.

Efforts to shrink the protection gap are good for society and create opportunity for financial professionals. So which households hold this opportunity? While the odds are already high (three in five) of randomly finding households with a gap, the LIMRA model considered family status, career stage and income levels, the last of which are described in this chart.

Not surprisingly, the larger dollar opportunities are among higher-earning

households, and the larger number of households with a need is made up of those with more modest incomes. The industry is still developing strategies on how to approach the middle-income market, but there are plenty of segments financial professionals could focus on within this group. For example, our model identified 7.5 million middle-income households — married couples with no children — with a life insurance gap of $2 billion.


Look at Younger Households

 Try taking a different look at young, lower-earning individuals (who may not have a need for a large policy now but likely will have other financial needs over time) or older individuals who simply may need insurance to cover final expenses. Can you create a turnkey process for getting large numbers of these types of individuals covered?

Taking the view that “some insurance is better than none,” consider offering a one-size-fits-all approach to those without any existing life insurance. For example, a simple $50,000 policy may not seem like much, but compared to nothing, it’s a lot of money. You then could decide which clients to follow up with to have a more in-depth conversation about their needs and the appropriate coverage for them.

Life insurance is a long-term social contract, yet the initial needs analysis may have a short shelf life as situations change. The level of coverage that was “right” at the time of purchase may not be appropriate as children age, debt obligations fluctuate and income levels change. Indeed, the coverage amount may be outdated as soon as a year or two after purchase.

LIMRA research shows that although seven in 10 consumers are at least somewhat interested in more flexible products that can adapt to their changing needs, few products are designed to do so. Financial professionals who have periodic conversations with their clients can meet this need by making course adjustments, raising or lowering coverages, or selling additional policies over time. The opportunity to help those already insured should not be underestimated — their average estimated gap in coverage is $317,000, more than twice that of those without any coverage.

In recent decades, many financial professionals who perhaps sold primarily insurance products earlier in their careers have benefited by diversifying their offerings. These advisors now offer a wide array of insurance and investment products, and increasingly may help clients with retirement planning.

You undoubtedly have heard of the new Department of Labor fiduciary rule related to retirement plans, including individual retirement accounts. If the new rule impacts only a relatively small portion of your business, you might decide to refocus exclusively on insurance and other nonretirement products to avoid having to modify your business practices significantly in order to comply with the new rule. 

This new rule, combined with the sheer volume of people with an insurable need, suggests this may be a great time to refocus on life insurance. 

Eric Sondergeld, ASA, CFA, MAA, is corporate vice president and director of Distribution & Technology Research for LIMRA. Eric is charged with ensuring that LIMRA produces relevant research to help member companies maximize distribution effectiveness and the use of technology in marketing and distribution. Eric may be contacted at [email protected] [email protected].

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