A report this week of the steepest decline in life insurance policy sales in almost 70 years prompts speculation of the reasons for it and what can be done to combat this trend. It also leads to questions about the related phenomenon of policy “lapses” – the termination of policies by surrendering them or, for term insurance or other policies with little cash value, by failing to pay premiums. Let’s at least take a look here at the question of the policy sales decline and perhaps the matter of policy lapses in a subsequent commentary.
The sale of a life insurance policy is complicated by multiple factors – the need, in most cases, to contemplate the possibility of premature death; confusing choices and bewildering insurance jargon; and suspicions that a proposed policy purchase will do more to benefit the agent than the insured.
An effective way to overcome some of the natural resistance to the purchase of needed insurance coverage would be to require disclosure of policy alternatives and costs, including the cost of sales commissions. Commission disclosure is required in the sale of securities products but not insurance policies? Does that make sense? Should companies and agents be able to “hide the ball” by failing to disclose the ability to design policies in a way that reduces commissions and increases cash values and long-term death benefits? Is it fair to let this “secret” out to some consumers and not others? Or does it violate the principle of mutuality – the idea that all similarly situated consumers and policyholders should be treated alike?
These are questions that insurance regulators and company representatives have thus far failed to answer. Consumer advocates and the financial press need to maintain the pressure that will force them to do so.
