LIMRA, a life insurance industry research group, has consistently identified the underinsured problem that exists today. Thirty percent of U.S. households have no life insurance and 50% feel they need more. There are probably many reasons for this, but I will address three today.
First is a reason I have touched on before, and that is because discussing and contemplating our own mortality is not something many people find pleasing. But as the saying goes, every cloud has a silver lining. In this instance, facing our mortality can provide us the impetus to be more productive in whatever it is that we do (because we don’t know how long we have left to do it).
The second reason is that many people would rather forego the protection and peace of mind that life insurance provides rather than meet with what they perceive to be the typical insurance agent. The media generally doesn’t portray life insurance agents favorably, probably for a couple of reasons.
Some of the negative portrayal is deserved, as there are definitely some bad apples in the life insurance business. But is that any different from other professions? Certainly the legal profession has its share of sleazebags, and stories abound about accountants who were caught with their hand in the till.
Also, portraying a life insurance salesman as an obnoxious boor can be funnier than portraying his as an upright member of society, a la Jim Anderson. When asked why things always went wrong for his character in Curb Your Enthusiasm, Larry David replied that it is generally not very funny when things go right.
The last reason is because there are fewer life insurance agents today than in the past. Think about it, when was the last time you were approached by a life insurance agent (other than me)? There could be several reasons for that, but a primary reason is how the insurance companies choose to distribute their product.
Traditionally, most life insurance was sold through the agency system, meaning by an agent representing a single company. The company hired, trained, subsidized and provided benefits for the agents, and that was a pretty expensive proposition.
So in an effort to save money, many companies fired their agents and marketed their products through brokers, who, ironically, were for the most part, agents of other companies. That worked well for a while, but now there are fewer agents entering the business, as there are fewer companies that use agents to distribute their products.
I’ve read where that won’t matter, because Gen X and Gen Y would rather buy online anyway. Yeah, right. As tech savvy as they are, it is my experience that they are also financially savvy, and I don’t believe they will be rushing to buy products that they don’t understand.
So it is my opinion that unless or until the industry can solve its distribution problem, America will continue to be underinsured. If the industry doesn’t or can’t solve the problem, some politician may try to have the government solve it. And we know how that story ends, don’t we? Affordable Care Act, anyone?