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When it comes to life insurance, millennials are just not thinking about it early enough, if at all. In a 2015 Life Insurance study, 60 percent of millennials rated paying for expenses such as internet access and cell phones as a priority over purchasing life insurance, and an additional 29 percent of millennials cited saving for vacation as a priority over purchasing life insurance. While unsurprising, this order of priorities indicates a lack of understanding of the need for life insurance and the protection it offers.
Experiencing death, and observing the financial strife of loved ones left behind after the premature death of a primary breadwinner, lay the seeds for a young person to begin understanding the need for life insurance and the protection it offers. With life expectancies in America steadily increasing, from 75.2 years in 1990, to 78.8 years in 2014, death has become a less familiar experience for most, thus depriving youngsters from the early lessons it confers.
Getting married and having children have traditionally been the two key life events that trigger a young person to get serious about considering, and ultimately purchasing, life insurance. With millennials delaying getting married and having children, the age at which contemplating purchase of life insurance is triggered is steadily increasing.
Given this demographic context, what’s a carrier to do?
Millennials’ behaviors and attitudes are out of the control of life insurance carriers. While effective marketing might influence and shape these behaviors and attitudes, it won’t move them into the carrier’s sphere of control—just ask the parents of any millennial! One action carriers can take that is squarely within their sphere of control is to be ready with a suitable product offering for whenever millennials finally do contemplate purchase of life insurance. Let’s explore what might appeal to millennials.
One of the defining characteristics of millennials is that they are more trusting of advice from peers than they are from corporations and service providers. Thus, for insurance advice, millennials are turning to personal finance blogs, such as The Simple Dollar and Nerd Wallet, rather than insurance agents who earn commissions from each policy they sell. Common advice amongst personal finance bloggers is to save on premiums by eschewing permanent life insurance in favor of level-premium term insurance that provides coverage until one’s planned retirement age. This advice usually includes a recommendation to invest the premium savings in low cost index funds held inside tax-advantaged retirement accounts, returns from which can then be used to cover financial obligations in years beyond the expiration of the term policy. Such advice is old news in the traditional financial planner community—at least in the subset that holds itself to a fiduciary standard—and is commonly dubbed the “term-to-retire” strategy. When millennials are finally ready to purchase life insurance, they’ll be looking for products allowing them to employ the term-to-retire strategy.
A key requirement of the term-to-retire strategy is availability of level-premium policy terms long enough to ensure coverage until the planned retirement age. For traditionally designed careers, the typical retirement age is 65. With the longest available term policies capped at 30 years, the term-to-retire strategy is only employable after age 35.
While millennials aren’t yet old enough for us to make observations about their retirement preferences, some insights can be gleaned from choices made by baby boomers. In a recent US News & World Report, baby boomers are increasingly putting off their retirement until some future point due to a combination of factors such as unfavorable pressures from the economy, inadequate savings, incentive from the social security administration to delay taking benefit till age 70, and increased life expectancies. By the time millennials reach retirement age, people might well be working into their seventies, making the term-to-retire strategy viable only after age 40.
It has long been believed in the industry that purchasing life insurance after age 40, or even 35, is inadvisable, and that the earlier life insurance is purchased, the better it is for both the insured and the insurer—in terms of qualifying for the best rates, and increased lifetime premiums, respectively. These beliefs combined with level-premium products capped at 30-year terms leaves someone more than 30 years younger than their planned retirement age that wants to implement the term-to-retire strategy without any suitable product to buy. The closest option is a Universal Life policy designed as a level-premium term until the chosen retirement age. However, since that product is really just expensive permanent insurance, it undermines the “invest the premium savings” portion of the term-to-retire strategy. Further, Universal Life is a complex product, creating additional barriers for anyone looking to buy life insurance. Considering that the target consumer here is unmotivated to buy life insurance to begin with, it’s critical to reduce purchase barriers, not increase them.
A clear and simple way for carriers to prepare for when millennials finally say yes to purchasing life insurance, be it in their twenties or thirties, is to start offering and effectively marketing a low cost level-premium 40-year term product. Why, then, has the industry not introduced such a product? Traditionally, the industry has had two primary issues over offering such a product:
- The target ages to sell such a product is limited:
- This resistance is similar to that which the industry had to offering 30-year term products before they became the norm some years ago.
- Further, with the trend towards increased retirement age and increased life expectancies, the target ages to sell will remain the same as that of 30-year polices from the past. After all, actuaries have extended mortality tables by 10 years. Carriers should similarly extend the terms available in level-premium products.
- The premium required to justify the increased mortality risk will make the product unattractive. Au contraire, when one considers that:
- The increase in mortality risk from a longer term is offset by the increase in life expectancies.
- The level-premiums will be collected for a longer duration.
- The industry is already offering level-premium insurance for equivalent terms inside Universal Life policies. A simpler level-premium term policy will necessarily be less expensive.
The life insurance industry, like many others, has awakened over the past several years to a new reality, in large driven by the social and technological trends embraced by younger generations. For millennials specifically, those trends have hit home for the industry in the forms of a general lack of interest in purchasing life insurance in their twenties and early thirties, increased life expectancies for men and women, the trend toward increased retirement age well past the age of 65, and incentive from a Social Security Administration battling insolvency to delay taking benefit until age 70. Offering a 40-year term life insurance product is one way to start to get the attention of the next generation of insurance buyers.
One of the overarching tenets of life insurance is that it has always been relevant to people’s lives: their hopes and dreams for the future can be protected through a product that is mutually beneficial to both parties. This has been true across generations, and it may yet be true for the millennials. At least for the moment, however, the millennial generation does not recognize this relevance to their lives. I can’t think of a more serious issue for the industry to address to protect its own future.
 The Centers for Disease Control and Prevention’s National Center for Health Statistics (2014).
 Pew Research Center Social and Demographic Trends (September 24, 2014): Record Share of Americans Have never Married: 29 and 27 years old for men and women respectively in 2014.
 U.S. News & World Report (Feb. 12, 2016): 5 Baby Boomer Retirement Trends: 56 percent of boomer men and 45 percent of boomer women are working beyond age 65