Why Insurance is Sold and Not Bought

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.

Comments

  1. There is nothing like a sound needs analysis to develop “I’ll buy” instead of “you sell”. Another problem can often surface in that life insurance is a postponable purchase. To combat this, the great Ben Feldman developed what he called the “Cost of Waiting”. We developed an illustration around that concept which proves, in the link below, that a prospect would have to earn in excess of 10% on the premium saved by waiting a year to buy in order to match the increased policy values obtained by buying now. The example below involves whole Life, but it works with any cash value policy.

    You can review this illustration at http://www.insmark.com/sites/default/files/c-o-w_4.pdf
    Don’t overlook Pages 3 and 4.

  2. Hi

    I had this discussion with the Head of Agency Channel who was advocating that we need to change the scene. The first fear that came to my mind as a sales professional was, hey why would I want to do that, its like making myself redundant…

    Well jokes apart, In India we saw mobile telephones going from INR 16 per unit call to INR less than a 100th of this amount. The volume of usage of talk time per instrument and the number of users exploded. Obtaining a connection became very easy and quick for both pre-paid and post paid.

    The purchase process, the usage process, the understanding of the many features, topping up for talk time everything was so customer friendly

    If we can make pure risk insurance and savings cum insurance so simple to understand, so easy to purchase but most importantly build confidence in the mind of the beneficiary that the CLAIM would be paid, selling insurance can become easy…

    but pull product…am still wondering how to bring this transformation…

    Consider, education…and compare with life insurance

    We finance the education of our children for almost 15 years (in India) with the hope that they would earn a good living. We see almost everyone doing this around us. However, I am observing (Refer poll on linked in – …skills I wish I had learnt …) people saying that they graduated in a field hoping that they would have a good living and then not able to land a job for significant periods…or that school / college did not prepare them for many of the needs of working life…

    So it is interesting that we invest large amounts in education for long periods of time just like insurance demands …should I say without guarantee of the outcomes….

    BUT

    when it comes to insurance

    Procrastination become the thief

  3. I passionately believe Life Assurance can be bought if only the practitioners can commoditise some of our products, e.g. Term Assurance.

    A shift towards this line will not only ensure affordability by all but also will make it simple enough to appreciate.

  4. Life insurance is a real need that is not even felt by the people. This is the reason it is sold and not bought. Someone is required to convince people about the need of life insurance and when this “someone” comes in between the product and buyer it is understood to be sold and not bought.