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The Life Insurance Mid-Market Challenge

October 17, 2013 | BY DAVIS LIFE & ANNUITY

More Americans are underinsured than they were a decade ago, and nowhere is the coverage gap larger than in the middle market.

This is a significant problem for the life insurance industry, but it also represents one of our biggest opportunities going forward. There are billions of dollars in potential annual premiums that lie untapped. The challenge is to create flexible, innovative ways to reach middle-market customers and help them get the kind of financial security and peace of mind they need.

LIMRA defines the middle market as those households that have between $35,000 and $100,000 in annual income.

The benchmark that everyone seems to come back to when lamenting America’s underinsurance problem is LIMRA’s 2010 “Trends in Life Insurance Ownership” study, which is conducted every six years. The 2010 study revealed that ownership of individual life insurance hit a 50-year low, with only 44% of U.S. households having coverage. The number of U.S. households that have no life insurance whatsoever grew from 22% in 2004 to 30% in 2010, meaning 95 million Americans had no coverage whatsoever in 2010. The industry issued 1 million fewer life insurance policies in 2010 than in 2004.

Why Target the Middle Market?

  1. One important reason is that life insurance sales often prove to be a bridge to sales of other financial product offerings, such as annuities.
  2. Another reason relates to ease of sale and return on time investment. Less customer scrutiny and simplified issues makes for a quicker turn around.
  3. The use of Internet technology makes approaching this market less face-to-face oriented, especially with term insurance sales. (Market surveys show middle market consumers use the Internet to educate themselves on life insurance products.)

The Value Proposition

Despite the mid-market gap, it should be remembered that the value proposition of life insurance has not declined. In fact, you can make the case–and we should all be making it–that hard times make life insurance protection more valuable than ever. Nothing can push a family into a financial crisis faster than the unexpected death of a breadwinner with little or no life insurance to provide support.

To close the underinsured gap in the middle market, you need to concentrate on affordable life insurance options that can get middle-market families the kind of coverage they need to weather financial uncertainty. To do this you must overcome dangerous misconceptions of a typical mid-market prospect.

One misconception is how badly consumers overestimate the cost of life insurance coverage. Asked to name the annual premium for a 20-year, $250,000 level-term policy for a 30-year-old policyholder in good health, Americans estimated $400–or more than twice the actual $150 annual cost, according to a recent joint LIFE Foundation/LIMRA.

To demystify life insurance, we need to be able to have a conversation with a client where we say, “You may not need life insurance for your whole life, and your needs are going to change.” A policyholder with a young family may need a certain level of coverage that can provide enough support for income replacement, college funds for the kids, and other expenses down the road, but not necessarily last to 120.

The industry is coming out with new products to reflect this changed emphasis. These products often provide coverage up until retirement and may include premium waivers in the event of unemployment or disability. Incorporating these kinds of safeguards against financial reverses is really what life insurance is all about, and this is the kind of approach that drives home the point that coverage has to be part of sound financial planning.

The way to crack the middle-market is simple but not easy: know your customer, find the right message and delivery method to resonate with different segments, and come up with products that address new financial realities.

We at Davis Life Brokerage are here to help you with this under tapped market. Call us and we will work with you to provide your mid-market prospects with a solution to meet their unique needs.

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