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After a 26% dive in the first quarter compared to a year earlier, individual life insurance annualized premiums dropped 20% in the second quarter, according ...
Limra Records Steepest Drop in Life SalesGo to Top
After a 26% dive in the first quarter compared to a year earlier, individual life insurance annualized premiums dropped 20% in the second quarter, according to a new survey.
Life sales for the first six months of the year dipped to a degree not seen since the second half of 1942, according to the U.S. Individual Life Insurance Sales report of Limra International, Windsor, Conn. Insurers recorded a drop in premium sales of 23% for the year to date—and no product line was spared, Limra says.
Re: Limra Records Steepest Drop in Life SalesGo to Top
But look more closely at the numbers. The big hits were in variable and UL.
Term and WL were down only about 3 points each. Big deal... considering the economy as a whole.
My problem is that while I'm writing about the same number of term and WL plans, the face (and obviously the prems) are lower. The guy who would have bought $500K face is taking $100K now and waiting to see "what will happen" to 1) his job, 2) is wife's job, 3) his home values, 3) the stock market, 4) his health care premiums, and 5) the price of gas.
I know you neo-cons live for gloom and doom... indeed you hope for it... except for Reagan and Ike, all your other candidates were dower downers (man, that Dole led the parade.) But better times are on the way. The markets are finally starting an upturn (quarter that ended today) and so far inflation is in check and housing is stabilizing in much of the country. The only question mark is employment and that has always been a lagging indicator.
Good economic times always follow bad. Yeah, I know you neos will bitch and moan about the deficit and debt and China dumping dollars, but that's because not one of you has majored in economics and wouldn't know a supply curve from a demand curve, to say nothing of how the post-industrial economy functions. But that's OK. You have Sarah Palin to explain it to you. You Betcha.
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Inflation, like most things in this current economy, will deteriorate. It has to.
There is ONLY one thing that causes inflation and that is expansion of the money supply. And the printing of money is precisely what government will be forced to do given the enormous deficits that are being projected by the Federal government over the next decade. Those are White House projections, CBO projections, congressional projections, etc. They all agree, deficits are going to sky rocket. They only disagree how catastrophic the numbers will be - but they all predict catastrophic.
Do you realize that this year's deficit, will be larger than all the deficits of Bush's 8 year presidency combined?
There are two ways to finance Federal debt. You can issue bonds or you can print money. Given that the world is fleeing our currency and debt, printing money is the easiest thing that the Federal government can do.
And that quite simply is the root of inflation. Even if current inflation rates do not reflect that increasing money supply, the time will come when they do. You cannot escape the implications of supply and demand with respect to currency.
And with high inflation comes high interest rates. I don't know how old you are, but I was an adult during the presidency of Jimmy Carter and I recall the inflation at that time. I remember having a mortage at 13% and feeling lucky my mortgage rate wasn't 19% like some of my friends.
My prediction is that Obama will make Carter look like an amateur, and that inflation rates, and interest rates, will be much, much higher.
Of course you know all this, because you've been listening to neo cons like me bitch and complain. And I know that you have already made up your mind and that you don't want to be confused by the facts.
Re: Limra Records Steepest Drop in Life SalesGo to Top
The fact that term sales remain strong is not surprising. We are actually experiencing increased demand for term comparison software because agents are having to fall back to more basic insurance products given that consumers are tightening up with their money. In the 1980's, during a downturn in the economy, we experienced the same thing.
Regarding consumers opting for smaller face amounts, I think the problem remains the same. Most consumers simply do not comprehend the cost of replacing their income to their family if they die. I have attached a PDF of a sample schedule that I have encouraged agents to use for years. I first developed this idea 30 years ago, when I was selling life insurance.
The key to the schedule is to show the consumer the year by year impact of drawing an income from a lump sum of money. In this example I assumed that the family needs $40,000 for 20 years. Not that much money, not that long. Based upon 3% inflation, and 6% interest, the software came up with $617,409.
While that number is shocking for most consumers - and it is shocking - I have found that the year by year schedule turns up a much more shocking number. That number is the ZERO at the end of 20 years.
If you use a year by year schedule, and explain carefully what the numbers are, consumers typically respond to the zero at the end of the schedule by asking "What will my wife do then?" I have had agents tell me that schedule doubles their average face amounts and makes the sale much simpler.
Re: Limra Records Steepest Drop in Life SalesGo to Top
Originally Posted by Robert Barney
And with high inflation comes high interest rates. I don't know how old you are, but I was an adult during the presidency of Jimmy Carter and I recall the inflation at that time. I remember having a mortage at 13% and feeling lucky my mortgage rate wasn't 19% like some of my friends.
Carter cannot be blamed for the double-digit inflation that peaked on his watch, because inflation started growing in 1965 and snowballed for the next 15 years. To battle inflation, Carter appointed Paul Volcker as Chairman of the Federal Reserve Board, who defeated it by putting the nation through an intentional recession. Once the threat of inflation abated in late 1982, Volcker cut interest rates and flooded the economy with money, fueling an expansion that lasted seven years. Neither Carter nor Reagan had much to do with the economic events that occurred during their terms.
The recession of 1982 hit during Reagan's second year in office. Double-digit inflation was well on its way to being defeated by this time, and Reagan's tax cuts and deregulation policies were already in effect. Blaming Carter's tax and regulation policies for this recession is therefore difficult.
=================================
You can spin history a lot of different ways, but I was in my early 30s when Reagan was elected so I remember it all fairly well and the above is how I see it.
You are free to differ if you please.
For the record, I voted for Carter in 1976 and 1980, but voted for Reagan in 1984.
Re: Limra Records Steepest Drop in Life SalesGo to Top
Hmm, in the same spirit, that would mean the federal reserve was responsible for the growth in the 90's that Clinton takes credit for and the federal reserve would be responsible for the recession of 2008 that Obama blames on Bush.
Revisionist history is great, isn't it?
There are a lot of facts about the Carter administration that aren't talked about in the webpage that you referenced, such as consumer confidence. People had a hard time believing Carter would lead us out of the recession, and in fact, they were very concerned about the stability of the dollar and the US. People started not wanting to hold $$$, and bought products, which caused the rapid inflation.
The history lesson I learned during this time was the President has 2 jobs in life. One is the constitutional duty of protecting the country. The second is making people feel good about the state of the economy.
Carter's fireside chats and inability to deal with the Iran crisis made him fail on both counts.
In contrast, I do think Carter was one of the most honest presidents we've had in a very long time. He was also one of the most trustworthy, in the fact he wanted to do what was right, and he had a strong set of guiding principles. Unfortunately, he was very ineffective.
Dan
P.S. I did not vote for Carter. I was a reluctant Ford supporter. Where was Ross Perot when you needed him?
Re: Limra Records Steepest Drop in Life SalesGo to Top
Addressing this to Robert Barney, as al3 will take care of the neo-con concerns. Robert, you are obviously extremely knowledgeable, if you did this chart 30 years ago.
In terms of Life Insurance, your chart drives a very precise face amount.
This is all done under the premise that the primary purpose of life insurance is to replace lost future income.
I do something similar, but more to "ballpark" a capital sum (help prospect determine proper face amount) -- assuming 6%, spend-down to zero at the end of the time period, without an inflation factor:
It takes $100,000 of capital for 10 years to generate $1,000 a month.
It takes $125,000 of capital for 15 years to generate $1,000 a month.
It takes $150,000 of capital for 20 years to generate $1,000 a month.
Robert, how do you feel about this general "rule of thumb"?
Re: Limra Records Steepest Drop in Life SalesGo to Top
I think replacing income is the DRIVING concern in the minds of most life insurance buyers - it is in my mind. I used to start my sale by saying:
"Can we agree that if Ed dies (Ed is our breadwinner) the problem for Jean (Ed's wife) and the kids is that Ed's paycheck stops coming in the door?"
NOTE: Never got an objection to that.
"And if I could show you how to keep Ed's paycheck coming in the door, if Ed dies, would that solve the problem?"
NOTE: Didn't get an objection to that either.
Asked a few more questions.
Jean, how old is your youngest. (23 - that age = minimum time income is needed)
Ed, how old are you?
At what age did you want to retire?
(age of retirement - current age = maximum time income is needed)
Ed, what do you make a year - ROUGHLY?
Now you have all the values necessary to run the analysis, showing two values, a minimum insurance amount needed and a maximum.
The problem with your $100,000 producing $1,000 per month for 20 years at 6% is that there is no situation on earth where you will have no inflation with 6% interest rates.
The other problem, if you are not doing this, is you MUST show the year by year numbers to demonstrate where the money goes and how it works. Don't assume that the client will "trust you". Remember, the average life insurance agent is thought of in the same way as the average politician, with a slight edge over the politician (but ever so slight).
I have uploaded two different PDF's for your consideration. One is at 6% with no inflation, the other is 6% with 3% inflation. Which scenario would you prefer for your family?
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Robert -- thanks so much for sharing the parallel files. I see that the 3% inflation factor makes a huge difference in the required capital. Obviously, need to re-work my "ballparks" accordingly. I'm sure a lot of agents will benefit from what you have posted, and your wisdom. Thanks again!
When you enter in the client info, DON'T select the face amount - click the button that says Income Replacement Calculator. It's to the right of the face amount.
When you enter the info, it will generate a year by year for that scenario, and if you want, run a comparison for that specific amount of insurance.
Re: Limra Records Steepest Drop in Life SalesGo to Top
While I agree with the previous posters that prospects are shocked about how much they'll need to protect their income, I disagree with how to solve the problem. When I calculate the death benefit needed, I use a far more conservative approach. Why? If the client doesn't want to go back to work, we have to invest the proceeds to the extent that the surviving spouse never runs out of money. 6% interest is extremely aggressive given our current rate environment. The alternative, investing in the stock market, increases the risk of running out of money due to a fall in stock prices. I prefer using 4% as a proxy (interest on a CD) and going from there. Yes, inflation could be a concern. However, until a surviving spouse has their head on right (and we know that can take years, if at all), I will not put their money at risk. I've never had a client object to this approach. I let the client know the maximum they can apply for and let them choose if they want all, most, or some of the death benefit they're eligible for.
Re: Limra Records Steepest Drop in Life SalesGo to Top
When you calculate, based upon 3% inflation, and 6% interest, you are basing the calculation upon a 3% difference which is 1% more conservative than your 4%.
The fact is that no one can be sure what inflation will increase to and I suspect it will be very, very high. But interest rates will also go high, and it is the difference between inflation and interest that is key.
I have attached three schedules. One for 0% inflation and 3% interest, the original for 3% inflation and 6% interest, and another for 13% inflation and 16% interest. You will note the capital amounts are virtually the same.
The lesson is that the spread is key. So I actually agree that 4% is reasonable, but many may say it is too low. Using the schedules I have provided, you can see that the reason that interest rates tend to be higher at different times in the past, was because inflation was high.
Limra Records Steepest Drop in Life Sales
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