At some large managing general agencies (MGAs), term insurance flew off the shelves last year. Seemingly immune to market fluctuations, this product is riding the crest of the credit protection wave, especially T20. A similar picture is emerging in 2010.
Force financière Excel sold a lot of insurance in 2009, says James McMahon, president of the Sherbrooke-based MGA. This sales strength continues. "January 2010 was our best month in the last ten years," he reports.
Mr. McMahon pins these results on reviving client confidence. This recovery is a welcome relief after 18 months of belt-tightening, he explains. Advisors are revisiting clients to sell them segregated funds. At the same time, they are reviewing their clients' insurance portfolios, which also helps term sales.
T10 and T20 are insurance products covering 10 and 20-year terms. T20 is particularly popular at the moment, says Mr. McMahon.
However, while term life insurance was a star product in 2009, he expects a shift in the market in 2010. "Last year, term insurance represented 80% of our sales. Since early 2010, our sales reflect a more mixed market. Things are returning to normal. Term products have made up 50% of our sales since the start of the year," he told The Insurance and Investment Journal.
Mr. McMahon adds that his MGA often sees term insurance sold to provide credit-related coverage in case of death. "We sell many term policies to clients that have a mortgage.
Don Hart, Executive Vice President of brokerage development at Toronto-based MGA, Qualified Financial Services (QFS), says term sales were up 25% in 2009 over 2008 at his firm.
He adds that QFS has enjoyed this growth rate in term sales for the past seven years since it adopted the Human Life Value approach, a concept that measures the economic loss of a human life to determine the amount of insurance proposed to prospects. This amount aims to replace all the future income the family would lose if the insured person should die prematurely.
Larger face amounts
Under this approach, QFS advisors show prospects how much life insurance they can qualify for, which will generally range from 15 to 20 times the prospect's income. Mr. Hart says that clients do not buy that full amount, but they will usually purchase policies with larger face amounts than they would have done had they only been shown a simple needs-based analysis.
"In 2009, the average size of our term insurance policies was more than $800,000," Mr. Hart adds. He estimates that this is four to five times higher than the average policies sold before QFS adopted the Human Life Value approach.
QFS also encourages its advisors to conduct a "wants-based analysis versus a needs analysis." Most advisors have been trained to sell insurance to cover financial needs, however, clients are ready to purchase enough insurance to cover not only their needs, but their wants, he adds.
Mr. Hart adds that QFS advisors sell term policies with a view to converting them to permanent insurance down the road. "We are anti buy-term-and-invest the difference." While term is an excellent product for having the largest amount of insurance in force for the least amount of money, selling convertible, renewable products will allow people to still hold insurance as they age when term becomes less affordable.
In addition, people will buy term and not invest the difference, he observes, so having a permanent policy in place is a great forced savings strategy.
T10 was the most popular term product sold by QFS advisors last year, and Mr. Hart believes that the economic crisis actually helped sales of protection products. "I think what happens during a crisis is that people realize that life is not all wine and roses."
Patrick Cloutier, Vice President, sales and business development at Trois-Rivières, Quebec-based MGA Groupe Cloutier, thinks term insurance products themselves are evolving very slowly. While Groupe Cloutier is experiencing solid growth in this niche, its growth rate has been steady for several years, he says.
The term insurance product has not evolved very much since preferred rates were introduced, he continues. The product's name is fitting, he added, it meets a static, temporary need. Innovation or new approaches by term suppliers is minimal, Mr. Cloutier points out.
Term policies are chosen based on needs that remain stable over many years. T10 is ideal for maximum insurance at a low cost for a limited period, as in shareholder agreements for a young company. By comparison, T20 covers the security needs of a young family with a mortgage.
Sales of T20 policies are strong, he adds. The need to cover debt in case of death is a growth driver. Other products are less popular. T30, for one, is too expensive. Given the choice between a T20 and a T30 to cover a 25-year mortgage amortization period, clients will take the T20, Mr. Cloutier says.