Coming to Term | February 2002 Cover Story

Cover Story: Coming to Term

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By Lynn Vincent

Sept. 11 has refocused clients' priorities. Term insurance is helping them address their concerns.

On Sept. 11, 2001, the same day jetliner-wielding terrorists turned the World Trade Center into rubble, hair salon owner Manilla Whitehorse of Norman, Okla., buried her sister at a funeral service in Tulsa. Her sister, only 54, had died of a heart attack. For Whitehorse, the sudden loss of a loved one, combined with the catastrophic death and destruction visited upon the American East Coast, brought life's uncertainty into stark focus. After scrambling around with the rest of the shell-shocked Tulsa population, she and her husband drove back to Norman, where she immediately contacted life and health insurance agent Mickey Mann. Within days, Mann wrote Whitehorse a 30-year, $150,000 term-life policy, more than doubling her previous coverage.

Until Sept. 11, "I never really thought I needed more coverage," says Whitehorse, who owns a $125,000 permanent policy. "But on the way home after the attacks, my husband and I were talking: You just never know where you're going to be or what's going to happen." In fact, Whitehorse was so adamant about securing more life insurance that she refused even to drive to nearby Lawton to see her mother without making sure her new term coverage was in place.

Agents across the country report that prospects are more willing to listen.

Whitehorse isn't alone. Both insurance agents and term quote services report a surge of interest in life insurance in general, but particularly in term life, since Sept. 11. Mann, Whitehorse's agent and principal of Mann & Associates in Norman, Okla., reports a 30 percent spike in new business since the disaster; he wrote 200 applications in the last quarter of 2001, most of them term. David Kleinhandler, president of Quotemaster, a New York City term quote service, says business is up 35 percent. By December his phone had rung so much, he had to cut back on some marketing efforts to stem the flow of new callers.

Even before the thundering bull market of the 1990s gave rise to a growing bevy of sexy, investment-linked permanent policies, many producers considered term the ugly stepsister of insurance products. It was plain, without much in the way of attractive perks.

Did the events of Sept. 11 turn term insurance into the Cinderella of life insurance products? Insurance professionals all over the country say "yes."

Mortal thoughts

Phillip Gallant is an executive VP at New York Long Term Care Brokers and Advantage Financial, a Clifton Park, N.Y., firm serving 1,700 brokers. Along with a 15 percent to 20 percent increase in business overall, he says his firm's average face-value quote for term also has spiraled upward since Sept. 11. "Before the attacks, our average quote was for a policy in the $200,000 to $300,000 range," Gallant says. "Now it's more toward half a million. I think people are reassessing a couple of things, including earning power. A lot of people in high-paying jobs died in the World Trade Center, and the media have talked a lot about changes in lifestyle some people have had to make after losing someone like that."

Steve Frankl, a consultant for Northwestern Mutual in Milwaukee, Wis., agrees. "People have a heightened awareness of their own mortality. Historically, people have tended to procrastinate when dealing with estate issues. Now we're seeing people willing to move forward and really take action."

Mann says he's seeing a lot more serious buyers now than browsers. Among the 100 applications Mann's firm has written since Sept. 11: A $500,000 term policy on a feedlot manager in farm-studded northwestern Oklahoma, and a $2-million policy on a hospital administrator and private pilot in the southeastern part of the state. Not only are Mann's customers ready to buy, they're ready to pay. One client purchased a $1-million term policy and immediately mailed Mann a check for the entire premium. "I couldn't bind it right then and had to send it back," Mann says. "People are now not hesitant to write the check to put the insurance in place."

The meaning of life

What does term insurance's renewed popularity mean for producers?

Term provides agents with a way to extend existing client relationships.

First, it means a fresh chance to build relationships with a more receptive group of prospects. Agents across the country report that prospects are more willing to listen. There's a new attitude toward agents, as people realize that insurance professionals are in the business of offering families a way to "stay in their own worlds" after losses such as those suffered in New York, Washington, D.C., and Pennsylvania. That, combined with the low price tag on term coverage, offers agents the opportunity to educate more people more quickly, while also building a rich base of future permanent-life and estate-planning clients.

"Companies do have the opportunity ... to form some relationships," says Thomas Corcoran, a principal at Tillinghast-Towers Perrin, a worldwide management consulting firm in Hartford, Conn. "Once you do have customers, they tend to be pretty loyal to their agents. It's a good time for agents to ... expand relationships with younger prospects," who will most likely, at least initially, buy term.

Second, term's renewed popularity provides agents with a way to extend existing client relationships. Steve Ruchman, principal of New York-based Ruchman Associates, says that since Sept. 11, several of his affluent clients with permanent policies are adding high-face-value term as a way to hedge against specific risks. For example, he has as clients three partners in a well-known garment district dress house. Ruchman had been "after them for years" to increase their partnership insurance. Following the attacks, they called him, and took out $1 million in term insurance for each partner.

After Sept. 11, another existing client, a 50-something, junk bond trader in Greenwich, Conn., called Ruchman and told him, "It's time." The trader, who is in the process of building tremendous equity in his own company, took out a 15-year, $5-million term policy to protect his family until his company is worth enough money to take care of them if he dies.

Such stories spotlight the gaps term insurance can fill for families -- gaps some agents have overlooked in favor of selling more lucrative permanent policies, sometimes at the expense of gaining a new client.
Among other things, term can:

Serve as a "starter" life insurance policy for the large segment of consumers whose group health plans no longer offer a life insurance option.

Create an estate for young families, protecting them with affordable coverage until their income can support permanent coverage.

Temporarily ramp up coverage for specific life contingencies.

Bring both members of a two-income family into your client base: If both of them can't afford a permanent policy, you can sell whole, variable or universal life to one, and write a convertible, term policy for the other.

Sometimes, it's necessary to sell term to both. That's what Gallant did just after the attacks. A couple who came to see him late last year had dual incomes in the $30,000 range, a mortgage, high credit debt, four children in high school and college, and no personally owned life insurance. She was 53 and he was 54. The attacks drove them to ask the critical question: "What if something happens to us?"

Term's renewed popularity means a fresh chance to build relationships with a more receptive group of prospects.

The couple was extremely motivated to put policies in place. But, says Gallant, they initially held a pair of erroneous beliefs: one, that about $100,000 in life insurance ought to do the trick, and two, that the husband ought to be insured for more than the wife, even though she earned more than he did. They went with affordability: a $250,000 term policy for each, with a 10-year level premium. "It was a real opportunity to educate them, to get them to see what their needs really were," Gallant notes.

Term reborn

Gallant believes the terrorist attacks repositioned term in the larger insurance marketplace because people now want as much death benefit as they can get, particularly young families looking to create an estate or replace a breadwinner.

Not only did the attacks reposition term, Gallant says, but "for a young family, the insurance agent has an ethical obligation to sell it to them" if doing so will provide the necessary death benefit when a less affordable permanent policy won't. "But frankly we don't make as much money from term insurance, so that's not always the product that gets shown," he adds.

But even that has changed. Many producers say that since the attacks, they've concentrated more on really educating clients about the cold realities of a family's life after death.

Quotemaster's Kleinhandler, for example, received an immediate sobriety check the day of the attacks. His 24th-floor Madison Avenue offices faced the World Trade Center and several of his clients worked there. Kleinhandler says the events have caused him to "take life a little more seriously. When I'm talking to a client now, I really try to help them get themselves in order with trusts, wills and so forth, to achieve peace of mind."

Reaching out

He's seen similar reactions among other agents -- a new drive to educate and counsel clients. Agents also report a reciprocal thirst among clients for education and needs-analysis related to end-of-life planning. That trend may be to Internet term-insurance sales what the bear market has been to Web-based investment services.

"Term insurance is a commodity and that encouraged people to buy it off the Internet," says Mann. "But Sept. 11 seems to have decommoditized even the most commoditized insurance product. I'm getting a lot more questions on guidance now. Sept. 11 put new value on human contact. People are realizing that if they bought their insurance off the Web, they wouldn't know where to turn if their loved one died. The attacks helped people realize that the agent is there to help."

"People are realizing that if they bought their insurance off the Web, they wouldn't know where to turn if their loved one died. The attacks helped people realize that the agent is there to help."

The sense of urgency surrounding end-of-life issues reverberates beyond life insurance. Studies measuring the effect of Sept. 11 on consumers show a spike in the number of people who now think pre-need funeral planning is important. A survey by Forethought Financial Services, a nationwide provider of funeral-planning insurance, showed that more than 4 million more people think pre-need planning is a good idea than thought so prior to Sept. 11. Six million more people intend to complete that planning within the next 12 months than did before the attacks. Those numbers represent a sizable increase in the number of people now weighing -- and ready to take action on -- end-of-life issues, including insurance.

Respect

The terrorist attacks of Sept. 11 caused many producers to rethink term insurance as a way to build their practices while better serving certain client segments. One State Farm agent, speaking in December on National Public Radio, described the pre-Sept. 11 public reception of advisors as "plaid-jacket, used-car-salesman kind of people ... trying to sell people stuff they don't really need." Sept. 11 changed that. Agents have noticed glimmers of new-found respect for insurance professionals. The events opened many people's eyes: Life insurance agents are the only people who show up at funerals bearing checks instead of bills.

How long will the new attitudes and the accompanying term-sales boom last? Northwestern Mutual's Frankl says he hopes that the pain of Sept. 11 will fade somewhat for the millions who lived through it. "On the other hand, though, I hope it has an ongoing effect, that people continue to realize their responsibilities and keep that sense of urgency," says Frankl, who visited Ground Zero in December. "This was a life-changing event. I don't know how it can't leave a lasting mark on you."

Lynn Vincent is a frequent contributor to Advisor Today.

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