Carriers may be going through their own tumult, but that hasn't stopped clients from seeking life insurance coverage, according to agents and advisers.
Carriers may be going through their own tumult, but that hasn't stopped clients from seeking life insurance coverage, according to agents and advisers.
Insurers are coming out of a rocky third quarter in which many of them experienced sliding earnings and falling sales of variable annuities. But while some customers may be shy about getting into an equity product right now, they still know that they need life coverage.
"In this turmoil, people realize that they're financially vulnerable, and they want to make sure their family is taken care of irrespective of how the portfolio is doing, so it's easier to sell insurance," said Brad Elman, president of Nine Dots Benefits and Insurance Services LLC in San Jose, Calif. He is also the 2008 president of the Financial Planning Forum Inc., a Palo Alto, Calif.-based organization of attorneys, financial planners and insurance professionals.
"When people feel like their net worth is sufficient, they're less likely to buy insurance, but that comes home to roost when you're in an economy like today, when real estate values drop and the equities you were counting on may not be there," Mr. Elman added.
Clients haven't been taken aback by the less-than-rosy results posted at some insurance carriers, who are now beginning to feel the pinch from investment losses and poor performance from equities-based products. Carriers who ended the third quarter in the red include The Principal Financial Group Inc. of Des Moines, Iowa, Hartford (Conn.) Financial Services Inc. and Prudential Financial Inc. of Newark, N.J.
Customers' realization that they still need life insurance, regardless of how carriers are being hit, may also be a sign that they're willing to be more realistic about the depth of coverage that they need, noted Chris Blunt, senior vice president and chief operating officer of life and annuities at New York Life Insurance Co.
"We're getting lots of questions on what's going on in financial services since a few insurance companies got dragged into this," he said. "But people are more open to advice in general. This environment is one where sales have typically gone up."
New York Life participated with Mathew Greenwald & Associates Inc. of Washington in a "Life Insurance Gap" survey. They polled 1,003 consumers 25 and up in April. Breadwinners surveyed reported a median of about $300,000 in life insurance coverage, and respondents were asked how they would use the coverage if necessary.
Responses ranged from replacing income to paying off mortgages to covering retirement and college costs — which in total would require $589,378 — 49% above the median the participants had available. Only a fifth of the respondents said they had enough life coverage to meet those needs.
Although those polling results predated the collapse of the financial markets and the recent frailty of some insurers, observers believe that those events actually will encourage customers to buy sufficient life coverage instead of giving up their policies. That means more interest in both term life insurance and permanent coverage.
"Right now, it's a financial-market issue. Customers are seeing the market get crushed day after day, but it's a good thing for fixed annuities and good, old-fashioned life insurance," Mr. Blunt said. Diminished assets in clients' portfolios have made them think about how they can protect what they have available, he added.
Clients were most antsy about their life insurance coverage immediately prior to the federal bailout of American International Group Inc. of New York. While regulators vacillated over whether the carrier would get any help, consumers were concerned about what would happen if the company were left to burn.
But once the bailout was finalized and regulators went out of their way to remind the public about state guaranty funds established to back up insurance products from failed companies, customers felt more secure about their policies, noted Leslie Beck, founder of Beck Investment Management LLC in Palo Alto.
Ms. Beck, a 27-year veteran of the financial services industry, founded her firm last year and manages $13.5 million.
"There's still a lot of confidence in the system, but part of it is the way the insurance regulation actually works," she said. After the AIG rescue, California Insurance Commissioner Steve Poizner reassured the public that his office was observing the carrier's subsidiaries, and told the state the companies had met state-required levels of risk-based capital.
While clients may not have any difficulty buying life insurance for its traditional purpose of income replacement, advisers and agents said, it's harder to sell coverage for estate-planning transactions.
"Estate planning in general is important, but it's about fine-tuning your estate distribution," Mr. Elman said. "It's not about making sure there's food on the table in the event that Mom or Dad dies. One scenario is a 'want to,' and the other is a 'need to.'"
E-mail Darla Mercado at dmercado@investmentnews.com.
