The market for life insurance is huge. LIMRA’s 2017 Individual Life Insurance Consumer Survey estimates 9 million Americans purchased individual life coverage over a 24-month period. While the market is large, it is also very diverse. The need for life insurance does not discriminate along socioeconomic dimensions; thus its consumer base contains a broad cross-section of American households.
Yet market diversity is not limited to demographic dimensions (such as age, income, gender and race). Consumer diversity includes different motivations (such as life events), different reasons for buying (such as income replacement and final expenses) and different levels of need (such as coverage amounts).
LIMRA estimates more than 60 million American households have a life insurance need gap. So finding consumers who need coverage is not the most significant challenge. The real challenge is pairing the right products with the right prospects.
The idea of pairing products and prospects is not new, so why is it such a challenge? Two reasons:
1) Synchronizing consumer and product segmentation with marketing and distribution operations is not easy.
2) Research on consumer choice behavior informs us that having too many choices can often result in consumers selecting the “no-choice” option.
LIMRA’s research can help the industry with both issues. Study findings indicate reliable relationships between product types and coverage amounts, with life events and buying reasons and buyer types. If used properly, this information can help get the most appropriate product in front of the best prospects, which reduces the number of choices they need to review and increases the likelihood they will select one of the options presented.
For example, the most common reason people buy life insurance is to replace the income of a household wage earner. This is a traditional reason for life coverage, but is significantly more common among term life buyers (51 percent) than among permanent life buyers (40 percent).
Consumer life events and buying reasons are not only related to product types purchased; they are also related to coverage amounts. One buying reason associated with higher coverage amounts ($200,000 or more) is “replacing income of a wage earner” (50 percent); some buying reasons associated with lower coverage amounts (less than $200,000) are “burial costs/final expenses” (23 percent) and “transferring wealth to the next generation” (16 percent).
As for life events, 29 percent of those who purchased a permanent life product had recently experienced the death of a friend or family member. Permanent life buyers are also more likely than term life buyers to have started a new job or to have been offered life insurance at work. Among term life buyers, common life events include marriage and the birth or adoption of a child.
The LIMRA analysis demonstrates that there is more to market segmentation than socioeconomic characteristics. By understanding consumer life events and the buying motivations they generate, industry markets and distributors can anticipate the type of product solution consumers are likely to want. By presenting a smaller set of solution options, each tightly aligned with buying reasons, we can simplify the process for the consumer and increase the level of protection they own.