CHICAGO – Researchers at LIMRA have uncovered a trillion dollar opportunity in life insurance sales, and it’s in the middle-income households who do not currently own enough life insurance.
That’s $1 trillion in face amount that producers and carriers might want to pursue or at least know about, according to Eric Sondergeld, who is one of the researchers who has been looking at the numbers.
LIMRA uncovered the opportunity by using a brand new model it has developed for quantifying the extent to which Americans are underinsured for life insurance, says Sondergeld.
Advisors might benefit from the model once their carriers begin using it to identify sales opportunities within the companies own life insurance market, says the corporate vice president for developmental and strategic research.
Sondergeld will debut the model during an early-bird workshop here today at LIMRA’s annual meeting. His presentation will cover closing the life insurance gap that previous LIMRA research has identified. Sondergeld shared a few details from his remarks in an interview in advance of his presentation.
The nature of the problem
Previous LIMRA research, published in 2010, had found that 30 percent of Americans have no life insurance at all, whether group or individual, he points out. In addition, that research found that 56 percent do not own any individual life insurance, which is the type of life coverage that many life insurance advisors sell.
Earlier LIMRA studies also found that, despite the low levels of ownership, there is a "high perceived need" for life insurance among many Americans.
The researchers put two and two together and decided it was time to start looking at what can be done to build on the perceived need and also to increase life insurance ownership among Americans. The result is the new model. It answers the driving question, "How much life insurance should people have?" says Sondergeld.
Many people do have group life insurance, he explains. But often times, the amount they have will likely not be enough to support a family whose breadwinner has died. Those breadwinners are the people who are uninsured. They have some life insurance, but not enough.
LIMRA sought to put some numbers on that population and the life insurance opportunities they represent.
To do that analysis, they needed a quantitative model, and they ended up building their own. Here are some of the elements they incorporated. They decided to:
- Study total life insurance ownership, not just ownership of individual life or group life
- Analyze and incorporate data on consumer finances which the government published this summer on its website
- Plug data into various life insurance calculators, and then build their own calculator to help them estimate the amount of insurance various demographics might need
- Limit the study to three basic and commonly experienced life insurance needs--income replacement, debt repayment and funeral expenses. Even without factoring in more specialized uses of life insurance—such as wealth transfer, estate protection, buy-sell agreements, and retirement planning—the model produced "some very large numbers" regarding Americans who are underinsured for life insurance, Sondergeld says.
- Subtract out from the calculations the investments that people already own, the government benefits they may have, and existing life insurance coverage.
"We did that to get to the gap," he says, reiterating that the purpose was to find out how much life insurance people actually need so they will no longer be underinsured.
The resulting model does not take into account whether people are uninsurable or if they consider life insurance to be unaffordable, Sondergeld allows, explaining that those factors are hard to test and measure. Still, he says the researchers consider the numbers that the model produces to be a "reasonable" projection of the underinsured (for life insurance) population in the U.S.