Life Insurance and Credit Union Members Insights for Credit Unions to Help Their Members Understand Life Insurance and Select the Right Product Brian Gerdes Senior Product Manager, Whole Life CUNA Mutual Group Kaaren Neuendorf Senior Product Manager, Term Life CUNA Mutual Group MC-0413-BD2F
TABLE OF CONTENTS Introduction... 1 Insights into Consumer Life Insurance... 2 Connecting with Consumers... 3 The Misperception of Cost... 3 Life Insurance for the Long Term... 4 Lapse Rates... 5 Helping Members Understand Life Insurance Types... 6 Insurance as a Complement to Investments... 7 Member Empowerment in the Purchasing Decision... 7
Introduction How would your family survive without your income if you passed away and did not have life insurance? Would their current standard of living remain the same? Would they face inevitable hardship? When faced with that very situation, 70% of U.S. households with children under 18 could not meet everyday living expenses with the loss of a major breadwinner. And a full 50% percent have unmet life insurance needs. 1 Why are so many households uninsured or underinsured? Why haven t they taken action? A LIMRA study of those likely to buy life insurance within the next year highlights four key reasons: 2 Because 61% of Americans trust credit unions, versus 23% who trust the U.S. financial system as a whole, 3 there is an opportunity for credit unions to provide an important life insurance product. 35% of consumers indicated no one they trusted has contacted them. 50% just haven t gotten around to it. 56% feel they lack the knowledge to make a confident decision. 75% are faced with competing financial priorities. These numbers, as frustrating as they may seem, represent an opportunity for credit unions. Consider: 61% of Americans trust credit unions, versus just 23% who trust the U.S. financial system as a whole. 3 This difference trust opens a window of opportunity for your credit union to provide an important life insurance product, build member loyalty and serve as a more complete financial resource for members. When members understand the actual costs and types of policies and how they align with their financial goals, they tend to keep their life insurance in force for long periods of time. Ultimately, with an appreciation of the product itself and the value of the protection it offers, life insurance plays an important role in the financial lives of credit union members. 1 Household Trends in U.S. Life Insurance Ownership, LIMRA, 2010 2 Trillion Dollar Baby Growing Up, Author: Cheryl D. Retzloff, LIMRA, 8/5/2011 3 2012 Chicago Booth/Kellogg School Financial Trust Index Life Insurance and Credit Union Members April 2013 1
Insights into Consumer Life Insurance LIMRA indicates that middle income households represent the largest segment of those who are uninsured. Making matters even more complex is that this group varies widely one specific type of insurance coverage typically won t fit their varied requirements, even within the same household. An individual s specific protection goals can be met with products that align with an insurance product s suitability and competitiveness. For example, a lower-premium policy, such as shorter-term life coverage, is well-matched to cover immediate debts, but may not be suitable to cover other types of goals. Knowing those goals offers key insights and ways to match life insurance products accordingly. According to LIMRA, the middle market s top-ranked financial goals are as follows: Even though 89% say it's one of their top financial goals to have adequate life insurance, only 59% indicate they have enough. 4 1 Have enough money for retirement (99%) 2 Have adequate medical coverage (97%) 3 Have resources to replace income if primary wage earner can't work (93%) 4 (As a parent) fund child s education (91%) 5 Have adequate life insurance (89%) 6 Have adequate resources to pay for long-term care expenses (77%) Despite these aspirations, here s a surprising fact: Even though 89% of those surveyed say having adequate life insurance is one of their top financial goals, only 59% indicate they actually have enough. 4 What accounts for the shortfall? According to the LIMRA study, the goal of purchasing adequate life insurance coverage is outweighed by the desire to have enough money to start a family, cover monthly living expenses, pay off credit card debt, save enough for retirement, buy a home, and have an emergency savings account. This discrepancy between a stated priority and actual behavior underlines the need for members to better understand life insurance products, costs and policy options. 4 Is There Magic in the Middle Market, LIMRA, 2008 Life Insurance and Credit Union Members April 2013 2
Connecting with Consumers Consumers often use more channels to research insurance than they do to make a purchase. For example, 86% of consumers use the internet as part of their life insurance buying process. 5 Interestingly, despite this high percentage of people researching online, typically less than 10% of credit union members actually purchase online. Instead, they opt for face-to-face, phone and mail purchases. While face-to-face representatives continue to be an important channel for members, those buying life insurance for the first time typically don t have a relationship with an insurance agent or insurance company. Of those new life insurance customers, 51% purchased directly from an insurance company, either by mail or phone. 6 Given that the U.S. is at a record low of life insurance ownership, 6 the direct-to-consumer channel is an important way to reach the uninsured. 51% of new life insurance customers purchased their policies directly, either by mail or phone. 6 Given that the U.S. is at a record low of life insurance ownership, 6 the direct-toconsumer channel is an important way to reach the uninsured. The direct-to-consumer channel functions in two ways. For those who have learned about life insurance and considered the product offering, the direct-to-consumer channel provides an easy and private way to respond. For others, this channel opens avenues for learning, evaluation and assessment of a member s specific life situation. In the case of CUNA Mutual Group, when a credit union member contacts the call center regarding a direct marketing offer, a licensed rep provides a thorough needs assessment. Many members find this dialog helpful in obtaining the information they need to make an informed decision. The Misperception of Cost Perhaps one of the reasons so many members are uninsured or underinsured (by their own admission) is their misperception of the cost of life insurance coverage. The amount of overestimation is significant: The LIMRA study revealed that consumers overestimate the cost of life insurance by almost 2.5 times the actual cost. 5 When consumers were provided the actual cost during the study, one third said they would be more likely to purchase life insurance. Clearly, better communications and messaging about cost through things like online calculators, knowledgeable and helpful call center representatives and accessible information will have a direct impact on the likelihood of purchase. A recent LIMRA study found that consumers overestimate the cost of life insurance by almost 2.5 times the actual cost. 5 When they were provided the actual cost during the study, one third increased their likelihood to purchase life insurance. 5 2013 Insurance Barometer Study, LIMRA 6 Understanding Life Insurance Buyers and Non-Buyers, LIMRA, 2012 Life Insurance and Credit Union Members April 2013 3
Of course, insurance pricing is based on a number of factors: Age and gender of the insured Amount of underwriting required and/or the general health of the insured Term versus permanent life insurance Expenses and commissions built into the policies While members may not be aware of these behind-the-scenes things, it s nevertheless important that they know and understand the actual cost of a policy. With the prevalence of budgeting and financial consciousness of today s consumers, an overestimation of cost can directly lead to inaction. Life Insurance for the Long Term The number of years members keep their policies in force is influenced by a number of factors. Life events like marriage, having children, changing or losing a job, or simply getting closer to retirement, can change an individual s need for various products. While some members do redeem their whole life policies for cash values and some convert from term life to whole life, the majority hold their policies to maturity. Knowing this, an appropriate needs-based assessment becomes critical. An accurate evaluation of a member s specific life situation and how it may evolve in the future helps ensure the selection of the right coverage. Simply, a carefully considered and appropriate policy provides the right protection at the right price for years to come. The key to life insurance is getting the individual in the correct policy up front so he or she doesn t feel the need to let it lapse. But even with expert assessment and recommendation, this is not to suggest a one-size-fits-all approach. As life events happen, coverage requirements change; some policies are canceled to avoid too much coverage, while others are added to cover specific situations. In many ways, a canceled policy may simply indicate a new chapter of life. While a specific type of coverage may no longer continue for those individuals, they ve experienced the value and peace of mind that a death benefit would have been paid (had a death occurred) at a critical point of their lives. For those with policies with a cash value, a cash benefit paid upon cancelation of a policy (in accordance with the provisions of their insurance contract) may signal the need for a different type of coverage. Regardless, the key to effective and valued life insurance protection is getting the individual in the correct policy up front. When this happens, the person recognizes and appreciates the value of the policy and doesn t feel the need to let it lapse. Life Insurance and Credit Union Members April 2013 4
Lapse Rates LIMRA s 2012 U.S. Individual Life Insurance Persistency Study shows the average lapse rates in the life insurance industry: 4.5% Overall policy lapse rate (annual) 3.1% Whole life policy lapse rate (annual) 6.9% Term life policy lapse rate (annual) Additionally, industry averages show higher first- and second-year lapse rates that decline dramatically year over year. In recent years, first and second year lapses have been higher (shown in chart below); however this is cited as a likely result of the recession. Generally, these rates are expected to return to pre-recession levels as the economy stabilizes. Term Life Lapse Rates While term life insurance has a higher lapse rate than whole life, many members decide to convert some or all of their term life coverage to whole life coverage at a certain point. This appears as a lapse in persistency metrics. Others may no longer need the coverage: For instance, if a couple s children have finished college and their mortgage is paid off, or if they have enough invested to self-insure, they may choose to allow their term policies to lapse rather than pay the premium to the end of the term. The benefit of a whole life policy is that if a member s circumstance changes and there s no longer a need for the policy, the accrued cash value is paid out at lapse. Whole Life Lapse Rates Generally, a whole life policy is purchased with the intention of keeping it for a lifetime. Still, there are cases when situations change and there s no longer a need for the insurance. Some consumers may not have budgeted for the premium post-retirement. Regardless of the reason, the benefit of this type of policy is that if circumstances change, the accrued cash value is paid out at lapse. Life Insurance and Credit Union Members April 2013 5
Helping Members Understand Life Insurance Types Term and whole life insurance have very different purposes and are recommended based on the specific circumstances of each member. When you provide this information, your member can make an informed choice, select an appropriate type of coverage, understand the policy and realize its value year after year. Term Life Insurance Term life insurance is relatively inexpensive coverage. Like home or auto insurance, when a term policy expires, no money is paid back to the policy holder. This type of policy is suited for people who need shorter-term insurance coverage to protect their families from an untimely death. The need may be to replace income, pay for education expenses or pay off debts. Additionally, term life insurance can serve as a good alternative for a person who might want whole life insurance but may not be able to afford it. Other individuals disciplined investors may choose to purchase term life insurance and invest the difference in cost between term and whole life policies. After the term expires, they essentially selfinsure with the funds they have invested. The premiums of term life policies generally fall into two groups. The first group has level premiums for a set period of time; that is, once the premium is established, it doesn t increase over the term of the policy. The second group offers less costly premiums for someone at a younger age, but increases the premium rates as the insured grows older. Finally, term life policies may have varying degrees of underwriting. Some are guaranteed issue, meaning the applicant is not required to undergo any medical questions or exams. Some are simplified issue where the applicant answers basic health questions. Still others are fully underwritten, requiring the applicant to undergo more extensive medical questions and a health exam. When you provide life insurance information that addresses specific circumstances in a member s life, he or she can make an informed choice, select an appropriate type of coverage, understand the policy and realize its value year after year. Whole Life Insurance Whole life coverage is typically more expensive than term life coverage because it offers additional benefits. As the name states, whole life insurance provides coverage for an entire lifetime, not just a specific term. The insurance also builds a cash value that can be accessed at any time and for any reason. Additionally, if the insured decides to terminate the policy for any reason, the accumulated cash value is paid out. Whole life insurance is suited for members who may be afraid of outliving their term policies and don t want their death to create a financial burden on loved ones. do not want to pay term premiums for a long period of time and receive no benefit if they don t pass away during the term. do not have the discipline to invest the premium difference between term and whole life to build the investment that would allow them to self-insure. Life Insurance and Credit Union Members April 2013 6
wish to reduce estate costs or transfer funds to the next generation without the tax burden. have disabled children who will be financially dependent on them their entire lives. Insurance as a Complement to Investments The purpose of life insurance is to hedge a family s risk against a premature and untimely death. It is to protect a family s assets and to allow the surviving family members to maintain a similar and accustomed standard of living. Members are encouraged to talk to their financial advisors and tax/estate planners to determine if their life insurance coverage is adequate and appropriate. In the case of whole life insurance, returns can be lower than traditional investments in bullish markets. However, the tax benefits for the intergenerational asset transfer and possible guarantees may far outweigh concerns about lower investment returns. Most people agree that life insurance is a necessary and effective component of a well-diversified investment/retirement portfolio. Member Empowerment in the Purchasing Decision According to LIMRA, almost 9 in 10 Americans view life insurance as a necessity. 7 Because of this, it s vital that a specific insurance product or combination of products is carefully considered and evaluated to ensure an appropriate match for what a person needs. When credit union members have the opportunity to learn about all aspects of life insurance, the different types of coverages, the costs and the application procedure, they feel informed and empowered to take the first step in protecting their families. For credit unions, making life insurance products available further enhances their position as a trusted financial resource and deepens member relationships. 7 2013 Insurance Barometer Study, LIMRA Life Insurance and Credit Union Members April 2013 7
The MemberCONNECT Program helps credit unions make TruStage life insurance products available to their members. Across multiple channels, the MemberCONNECT Program ensures members get straightforward information about many types of insurance options. In return, credit unions build stronger connections with their members and become even more important in helping them achieve their goals. The program has two goals: 1.) To provide members with the information they need to be empowered to make a purchasing decision; 2.) To make a broad array of products available that can provide protection that fits within most members budgets. The MemberCONNECT Program provides online access to financial calculators, a call center for over-the-phone individualized insurance assessment and consultation, or the option to return an application through the mail. When a member contacts one of the licensed call center representatives, a friendly suitability discussion assesses an individual s need for appropriate coverage. This evaluation takes many things into consideration, including the member s ability to afford the premium and any insurability challenges. The representative will also help the member complete the application and purchase over the phone (where permitted) and help select a payment option that offers the most convenience. To learn more about the MemberCONNECT Program, call 1-800-356-2644. The TruStage brand of insurance products and programs was designed specifically for credit union members, and complements your credit union brand. TruStage life insurance products are underwritten by CMFG Life Insurance Company (CMFG Life) and made available through the MemberCONNECT Program. More information about TruStage is available online at www.trustage.com/ourstory. TruStage life insurance policies, underwritten by CMFG Life, have many different options. They include: Term and whole life insurance New policies for individuals 0-85 years of age A wide variety of underwriting levels. Within each type of policy, TruStage offers a member-centric approach, competitive rates, a fair commission structure for our sales representatives and a fair royalty payment to credit unions. TruStage compares rates by type of term life insurance product and assures rates are competitive with the industry. Its Elite Level Term life insurance, underwritten by CMFG Life, is arguably a price leader in many age groups. CUNA Mutual Group was founded in 1935 by credit union pioneers and our commitment to this trusted partnership continues today. We offer insurance and protection for credit unions, employees and members; lending solutions and marketing programs; TruStage branded consumer insurance products; and investment and retirement services to help our customers succeed. Visit www.cunamutual.com or call 800.356.2644 for more information. TruStage life Insurance is made available through TruStage Insurance Agency, LLC and issued by CMFG Life Insurance Company. The insurance offered is not a deposit, and is not federally insured, sold or guaranteed by your credit union. CUNA Mutual Group is the marketing name for CUNA Mutual Holding Company, a mutual insurance holding company, its subsidiaries and affiliates. CUNA Mutual Group Proprietary and Confidential. Further Reproduction, Adaptation, or Distribution Prohibited. MC-0413-BD2F CUNA Mutual Group, 2013 All Rights Reserved. P.O. Box 391 5910 Mineral Point Road Madison, WI 53701-0391 800.356.2644 www.cunamutual.com