It is often said that “insurance is sold and not bought.” But have you ever thought about the reasons for this declaration? Have you ever stopped to think about the rationale behind it? Well, I have. And that’s why I want to talk about it today. Though the statement applies to insurance generally, I will restrict my comments to life insurance only.
Life insurance does not make the priority list of most people except where it is made mandatory by law.
One, life insurance is an intangible product that can be very difficult for many people to understand.
Two, most people will rather postpone the decision to buy life insurance till a future date; assuring themselves that a loss (death/disability) will not occur (early).
Three, there is a general apathy towards life insurance because of its very nature. People don’t like thinking or talking about the possibility of death occurring; yet this is an important consideration for every reasonable person. For every life, there is one death! Guaranteed!
When one puts all these three considerations into perspective, it becomes necessary that there must be somebody to educate people on why they should buy life insurance. This person has to convince people by pointing their attention to their needs, and also justify why the purchase of life insurance cover must take place NOW! What this person is actually doing is selling the idea of life insurance to people. It is different from a situation where someone needs a car and he simply goes to the nearest car dealer to make a purchase.
The person who does the sale of a life insurance product could be a staff or agent of a life insurance company; he could be an independent agent, or an insurance broker. He plays the role of a salesman. He convinces people to buy life insurance. To do that successfully, he must become the counselor, the educator, and the motivator for the client. Without his intervention, the prospect will continue to postpone the decision to buy. He continues to say that, “I can’t die now; I’m still young.” Or he says, “I’m not retiring until 15 years from now.” So he does not see the need to purchase a life insurance policy NOW!
I mentioned above that the very nature of life insurance partly accounts for why it must be sold and not bought. This is true. Life insurance is not a product that is bought frequently and people don’t understand it properly. It is not also the kind of product that you can easily compare with another similar product. When you cannot compare between two things, your decision is most likely to be slow. You have the feeling that you are just “stuck in it;” and that could bring some resentment. In talking about making comparison, I am referring to real life insurance products that provide death benefits. When making an investment decision, for instance, I can easily make a choice between keeping my money in the bank and buying stocks. That type of comparison is not easy when talking about life insurance. It is a unique product which creates an immediate estate that other financial products cannot.
So far, I have, as would be expected, spoken as an insurance man that I am. But I am quite mindful of the need to balance my opinion. So let’s switch to the side of the consumers.
Over time, insurance companies across the world have been perceived as selling opaque life products that are not easy for the “uninitiated” to understand. In many markets, it has been a case of forcing products down the throats of consumers. This is why, up till today, more than 80% of life insurance products are sold through insurance agents and brokers, because they understand the products and can explain them properly.
In some other markets, the agents seem not to be interested in encouraging the insurance companies to move towards simpler products because of the handsome commission they receive on the “hard” policies they sell. As the insurance companies continue to encourage agents to sell their traditional products, so the idea of “insurance is sold and not bought” continues to stay.
It could, of course, be argued that life insurance is now sold online today so it should be quite easy for people to go on the internet and buy life products of their choice. That is a statement of fact, but the volume is still minimal. The number of online sales of life insurance products is less than 1% of the total premium income; at least in the US. The irony is that a consumer who attempts to buy a life policy online could find himself being re-directed to an agent who will make the actual sale! This is the position with many of the life products being sold online today. So, again, life insurance is being “sold and not bought.”
Still on the issue of online sale of life products, I should mention that regulatory requirements in some societies make it quite difficult for this to grow – though these regulations are aimed towards protecting the buyers (customers) themselves. Some countries have regulations on the issue of insurer’s signature on policy documents, physical (hard copy) policy document and delivery, online payment of premiums, online adverts, licensing of products and sales agents etc.
Now that I have offered some explanations for the old maxim of our business, I think it wouldn’t be out of place to ask, “Can life insurance be bought instead of being sold?” I will be happy to receive your comments on this.