Life Insurance A Tough Sell For Millennials
October 14, 2015 by Reuters
Joseph Shonkwiler, the proud father of newborn twin boys, owns a life insurance policy.
Like many millennials, the policy was not a priority for the 34-year-old from Cambridge, Mass., until the twins were due. He will start paying down close to $200,000 in student debt after completing his MBA from the Massachusetts Institute of Technology’s Sloan School of Management.
A study from Life Happens, a consumer group formed by insurance providers, and Limra, the life insurance trade association, found that 29 percent of millennials cited saving for a vacation as a priority over purchasing life insurance or increasing their coverage.
And 60 percent of millennials said it was more important to pay for expenses like Internet access, cable, and cellphones than purchase some or more life insurance.
“Young people think life insurance is something you need to think about when you get old,” said certified financial planner Shannah Compton Game. “It’s a conversation topic for their parents, not them.”
But young people need life insurance policies too, especially if they have children or do not have coverage through an employer. Even a workplace plan, which typically covers $50,000 in income replacement, may not be enough for a young person with a mortgage or heavy private student loan debt which they could pass to spouses or parents who co-signed for loans. Workplace insurance plans do not transition with you, so millennials who change jobs a lot may come in and out of coverage throughout their careers.
“The main reasons a young person needs life insurance are if they are married or have a family. Life insurance provides income replacement that can be valuable for young people who are just starting out, or in the situation where one spouse makes more than the other,” said Compton Game.
Reaching Out
The insurance industry is seeking new ways to appeal to younger buyers who are not offered a life insurance policy through work, or need extended coverage beyond a workplace plan because of risk factors.
Focus on benefits rather than telling stories about death, said Compton Game.
Most traditional life insurance policies require a medical examination and meeting with a sales person, processes that do not appeal to millennials used to making a transaction with a few clicks on their smartphones.
Some insurers have come up with new ways to attract millennials. In May, USAA added an option allowing young people to increase coverage at key life events, such as having a child, without additional underwriting.
Also in the spring, MassMutual started a life insurance company called Haven Life to target younger customers. To minimize the intimidation factor, Haven Life offers immediate decisions on up to $1 million in term coverage from top-rated carriers, and the underwriting process occurs online.
Misjudging Prices
When Haven Life opened for business, Shonkwiler was among the first customers. He had spent close to 50 days working with a traditional life insurance company, and the mountains of paperwork and questions were wearing him down.
As a young, healthy non-smoker, Shonkwiler was frustrated that the coverage he wanted did not seem available. The online process at Haven was much smoother and was completed in a week, he said. His $500,000, 20-year term policy costs $25 a month.
That is less expensive than many people would think. In fact, 80 percent of all consumers misjudge the price for term life insurance, which is purchased in blocks of time like 10 or 20 years and does not yield a payout unless there is a qualifying event.
The survey by Life Happens and Limra found that millennials believed a healthy 30-year-old would have to pay $600 a year for a 20-year $250,000 policy. The annual rate is actually as low as$160, the organizations said.
Myriad other insurance options are available besides term policies, which offer more complicated investment opportunities and have different pricing structures. But anyone considering those should consult an independent financial advisor.
To do the math on what kind and how much insurance you need, you can call individual insurance companies to compare, or get information from companies like Life Happens and Bankrate.com, which have easy-to-use calculators.
