Purchasing life insurance is one of the first adult, forward-thinking decisions a person makes. It indicates that person is thinking about their family and the financial consequences of their possible unfortunate and unplanned demise.

For many investors, the first ownership of life insurance comes from programs sponsored by their employer. But many investors complement that insurance with additional protections in order to provide greater financial support to their family.

However, some investors do not add to their insurance ownership and some do not have insurance at all.

The ‘hows’ and ‘whys’ of insurance ownership are examined in Spectrem’s new study Investor Attitudes and Ownership of Insurance Products. The study looks at the levels of ownership of different forms of insurance and annuities, the reasons investors did or did not purchase such items, and the people who helped investors make decisions on insurance purchases.

“Our studies regularly consider the inevitability of an investor getting older, retiring and passing away," said Spectrem president George H. Walper Jr. “Studies show many investors depend on annuities for income in retirement and depend on insurance products to protect their families financially when the time comes. But this study looks at the levels of insurance ownership and the motivations that impact investors on these subjects.”

From surveys with investors with a net worth up to $25 million, the report finds that 29 percent of investors own Whole Life Insurance (beyond any insurance they own through their employer) and 28 percent earn Term Life Insurance. Nineteen percent own Long-Term Care Insurance and 7 percent own Universal Life Insurance.

On the other hand, 35 percent of investors do not own any insurance beyond that received through their employer. That includes those who have no insurance at all.

The report also notes that only 17 percent of investors own a fixed annuity, and only 12 percent own a variable annuity.

Investors answering the survey are segmented in the report in numerous ways, including by generation, and that research shows that the oldest generation, those who were born in the 1940s, are most likely to own Whole Life Insurance (39 percent). The youngest generation in the study, the Millennials, are most likely to own Term Life Insurance out of that provided by an employer program (33 percent). For obvious reasons, ownership of Long-Term Care Insurance follows increasing age (up to 29 percent of World War II investors).

There are questions about whether financial advisors should be involved in selling insurance products, or advising investors about the ownership of insurance products. In Spectrem’s study Defining Wealth Management, the No. 1 service investors do not expect from someone advertising wealth management service is advice on health and life insurance.

But of those investors who purchased life insurance beyond that which they receive through their employer, 32 percent said it was their financial advisor who recommended they purchase a life insurance policy. Only family and friends (52 percent) exceed the percentage of investors who got life insurance advice from their advisor.

It is not surprising to see that when asked the reasons for purchasing life insurance, 33 percent of investors who did so said their marriage prompted them to make the decision, and 26 percent said the birth of a child had the same effect. Twenty-seven percent of investors said they had reached an appropriate time in their life to own additional life insurance.

 

Top Takeaways for Advisors

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Much of what investors want to accomplish with their investable assets is to create a sense of financial security. Owning health and life insurance is a security blanket not only for the investor but for the investor’s family. An advisor can benefit from discussing a client’s insurance ownership in order to get a solid handle on the proper way to handle investable assets for other purposes, such as income and growth.

 

©2019 Spectrem Group