Though premium income growth in the US has plummeted this year,
Charles Davis reports on a new study highlighting
that a minimal proportion of consumers who have life policies are
showing interest in making changes to their cover. A sharp rise in
consumer risk aversion is also playing into the hands of

Though the US economy continues to drag down life insurance sales a
new study shows that middle-class Americans are hanging onto their
personal policies and preserving important protection in an
uncertain financial environment. The study underscores the
important link between life insurance and financial planning, and
provides some encouraging news for insurers about the perceived
importance of life coverage.

In its latest Financial Behaviors Index survey conducted in August,
insurance and banking services provider First Command Financial
Services found that just 4 percent of Americans report making
changes to their personal life insurance coverage as a result of
the economy. Of those who made changes, 42 percent increased, 29
percent decreased and 17 percent eliminated coverage.

These results stand as an encouraging counterpoint to this year’s
downward trend in life insurance sales. Individual life insurance
annualised premiums dropped 23 percent in the first six months of
2009 for the steepest six-month decline since 1942, according to an
release by research and consultancy organisation LIMRA

The good news is that those with coverage are clinging to it, and
that many who don’t have life coverage realise that they need it
and are awaiting economic improvement.

“We are encouraged and relieved to see that middle-class consumers
are not reacting to the economic turmoil by sacrificing their life
insurance coverage,” said Scott Spiker, CEO of First Command, in a
statement. “Cancelling policies to save money during tough times is
a move fraught with financial peril.”

In related findings, the August survey revealed that 3 percent of
respondents reported that their employer has made changes to their
life insurance coverage through work as a result of the economy. Of
these individuals, 70 percent reported that their coverage has been
decreased. Also, 34 percent of respondents felt extremely or very
comfortable with their life insurance coverage, down slightly from
40 percent in February 2008.

Notably, comfort levels were considerably higher among consumers
who work with a financial advisor: 43 percent of respondents
engaged with a financial advisor felt extremely or very comfortable
with their life insurance coverage, compared to only 31 percent of
respondents not currently engaged with a financial advisor.

Compiled by Sentient Decision Science, First Command’s Financial
Behaviors Index assesses trends among the American public’s
financial behaviors, attitudes and intentions through a monthly
survey of approximately 1,000 US consumers, aged 25 to 70, with
annual household incomes of at least $50,000.

In a related two-year study of 9,300 US consumers, First Command
found that the financial behaviors encouraged by a financial plan
provide the foundation for financial well-being and inspiration for
households squeezed by the economic crisis.

Households with a financial plan express far more security and
optimism for their future, are more confident about having enough
money for retirement, and as a result, they save far more.

Among the survey respondents, 44 percent of those who put the most
money into savings from month to month – an average of $600 monthly
– described themselves as “very” or “extremely” optimistic about
their financial future.

But more interesting is that, among those with the lowest current
savings balance, 57 percent of those who consistently put money
into savings expressed optimism about their financial future.

“These findings demonstrate that financial optimism isn’t dependent
on how much one has accumulated in savings – rather, it’s the
practice of saving itself that creates an emotional lift,” the
report said.

Conversely, short-term debt significantly reduces financial
optimism. In 2008, only about one-third (35 percent) of survey
participants said they feel “very” or “extremely” financially
secure from month to month. And only about a third expressed
optimism for their financial future.

But among those with high short-term credit debt, expressions of
financial optimism sank to 20 percent. Not surprisingly, the
greater the level of short-term debt, the less likely the household
was to be saving at all.

A new white paper from Allianz Life Insurance and LIMRA supports
the findings of the First Command research, finding that more
Americans are abandoning the old formula for retirement and
focusing on protecting principal and generating “income for

The white paper, How the New Economy is Changing the Way Americans
Save, found that the latest downturn is convincing many Americans
that asset allocation alone is not enough, and consumers are more
open to considering a variety of financial options than ever
before, despite the economic uncertainty.

According to the Census Bureau, by 2020 almost one-third of
Americans will be nearing or in retirement, but most don’t have
financial plans ready. The old formula for retirement was one-third
social security, one-third corporate pension and one-third
investments, such as 401(k) plans. Now, many pensions have
disappeared, the future of social security is unclear, and stock
market investments are not as reliable as once thought.

“The ‘new normal’ for retirement balances liquidity, volatility and
rate of return,” said Allianz Life president and CEO Gary C
Bhojwani, who co-authored the white paper with LIMRA president and
CEO Robert A Kerzner, in a statement.

“Today, Americans are looking more closely at guarantees and
principal protection as important components of a solid retirement

Survey respondents told LIMRA and Allianz that they were focused on
guaranteed payment streams – in August, some 35 percent of
respondents said that it was the single most important factor when
considering a retirement solution, up from 23 percent just two
months earlier.

This, of course, is music to the ears of annuity providers and life
insurers, who see the conservative nature of their instruments as
precisely what today’s retirement investor is looking for.

This recalibration of risk ceiling, coupled with a renewed emphasis
on financial planning, could signal the first signs of a life
insurance resurgence as incomes stabilise.