The Death of Life (Insurance)

It has been reported that life insurance sales suffered their worst half-year results in 67 years. In the first six months of 2009 individual life insurance annualized premiums dropped by a stunning 23 percent.

Should this surprise anyone?

Not really. For anyone who was willing to notice, individual life insurance has been undergoing  a slow-motion slide toward death. And what began as a trickle has now become a torrent of decaying sales that threatens the continued existence of the product as we know it.

The decline  began more than 30 years ago as people started to live longer and became more concerned with the cost of living than dying. Accordingly, their interest in a product focused on death naturally began to wane.

In its day, though, life insurance was a solid, simple product that effectively met a real need – protecting against the economic cost of dying young. Things were different in the golden days of life insurance supremacy. Most families depended on the earnings of a single wage-earner and there were few other options to protect and preserve the family if the wage-earner died young. And, many did.

Ironically, the push by insurance companies to sell large amounts of cheap, group life insurance and the commoditization (price war) of term insurance eroded the base for the purchase of individual, permanent (whole life) insurance policies. It is a little like a diamond company developing and marketing an artificial diamond that looked exactly like the real thing, but was significantly cheaper; and then wondering why the sale of diamonds declined.

Beyond extended longevity, the emergence of dual-income families and the rise of multiple financial products, especially those targeted to create value while living, further exposed individual permanent life insurance as a mono-benefit, outdated product. (Sure, industry stalwarts defended the cash value accumulations of whole life, but no one ever got rich buying whole life insurance – unless they died! And, just try living a golden retirement off whole life cash values.)

And, how did the life insurance industry react as they watched their favorite product wither and slowly die? They stood around the death bed and said, “Let’s get more of this!”

The first reaction was an expression of denial by blaming the agent for not selling enough of the product. That’s like Ford blaming the salesmen because they did not sell enough Edsels.

When that tactic failed to work, the industry began to develop more complicated and esoteric life products, in order to trick the consumer into buying them. Products such as Variable Universal Life and Universal Life with long term (and risky) secondary guarantees were introduced in an effort to clothe life insurance as an “investment.” Clearly, the results show that none of these stop-gap tactics to cure the terminal ills of the life insurance policy have worked.

But, at least give the industry credit for persistency. They continue to search for different ways to push the same old product. In fact, the industry has now circled back to where it was when the problems with selling life insurance started. Seeming to believe that the Great Recession will last a lifetime, the insurance industry is back to pushing the simplicity and guarantees of traditional whole life. Talk about grasping at straws! Reconstituting old products in a new world is nothing more than hash.

What the industry simply can’t get its arms around is that individual life insurance as a stand alone primary product or benefit is dead. Sure, they want to sell the product, but it is a product that people don’t need and don’t want to buy. What the life industry has to recognize is that–if they are to continue to exist–they must develop a whole new form of life.

Certainly, people – for a variety of reasons – still die young. And when they do, there is an economic cost to family and others, but this need is not significant enough in today’s world to justify life insurance as a stand alone individual product. (And, even this need is met by group life insurance or cheap commodity term.)

The life insurance industry can revive life insurance only if it is willing (and is able) to develop a new form of life insurance that offers rewards and incentive for living as its primary benefits. Life insurance can be offered as an adjunct to these living benefits that comes into play only if the policyholder does not live long enough to enjoy them.

Unfortunately, the life insurance has no insurance against the death of life insurance. There is about as much chance of the life insurance industry committing to creating a new form of life as there is in the consumer once again clamoring to buy the benefits of traditional whole life insurance.

In the meantime, life insurance sales will continue to decline, drip by drip, until the product as we know it goes the way of the Edsel.

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