Archive for category: Blogs

By: Mathew Greenwald
10/1/2024

Thought leadership research studies are widely used by asset managers, distribution companies, and insurance companies. The belief in the value of these studies is strong. My firm recently conducted a survey of executives in retirement companies and asked them about expected use of eight marketing tools. Seven in ten said they expected their use of thought leadership research to grow over the next three years, more than for any other marketing tool or process.

Despite this widespread use, it is my firm’s observation that thought leadership programs often do not achieve their potential benefit. To be most effective, thought leadership initiatives should achieve three basic objectives:

1. Impact an audience that is important to the company.
2. Study a topic that is both important and challenging to the target audience. The study should be on a topic that the target market wants to address more effectively.
3. Provide information and insights that help the audience achieve their objectives.

There is one obvious reason for the need to provide information that helps the target audience meet its objectives: financial professionals, consumers, and other possible targets of thought leadership want to do better on key endeavors and will value those who provide information and insights that help them do that. The days of providing information that is simply “nice-to-know” are long gone.

Unfortunately, I have seen thought leadership efforts that do not appear to have been designed to meet these objectives, but designed only to produce information that is interesting or get press attention. My main concern is that studies conducted for this purpose do not provide the value that can be achieved by the same level of expenditure as a more effectively designed and executed study.

To get the highest potential impact, three key steps are needed.

1. Impact an audience that is important to the company.

First, it is important to identify a target audience for the thought leadership effort that will provide maximum value to the company. Sometimes the target can be very narrow, such as a particular distribution channel that a company wants to penetrate: Pure RIAs, for example. Sometimes the target can be broader, such as financial professionals from all channels who have clients in the company’s target market: for example, financial professionals with clients who are retired. It is important that the target for the thought leadership effort not be too broad, however. The target can be a segment of consumers, but thought leadership programs aimed at all consumers tend to be too broad and generalized in the value they provide.

A segment of financial professionals is often the target of a thought leadership program because that is where the benefit to the financial services company is most direct. Information from an effective thought leadership program can help wholesalers and others get access to financial professionals and give them a value add that will enhance the relationship between the financial professional and the wholesaler or the company.  It can help company representatives get invitations to make presentations to a financial professional’s clients. It can enhance the image of a company. It can motivate a financial professional to share publications of research findings with their clients thereby producing value for the financial professional and end consumer.

2. Study a topic that is both important and challenging to the target audience.

The second step, as stated, is to choose a subject that goes beyond being simply interesting. It should be on a complex issue the target audience is, to at least a certain extent, struggling with. Examples include how financial professionals can best formulate relationships with their clients’ adult children, how they should establish asset level goals for retirees, or how consumers should formulate goals for their retirement years.

3. Provide information and insights that help the audience achieve their objectives.

The third step is, in our opinion, the most differentiating. There are many studies, maybe most particularly in the retirement area, that provide information which is interesting but simply do not provide new insights that help the target audience better meet their objectives. One example is the many studies that indicate that many are not saving enough for retirement. These studies are often interesting, but they would be a lot more effective if they helped financial advisors better motivate or guide their clients or helped develop new tools to help individuals better assess how much they should save to meet, or set, lifestyle goals in retirement.

Understanding Your Target Audience for Thought Leadership

A good thought leadership study will go beyond producing interesting information: it will help the target audience better meet their goals. Financial professionals, pre-retirees, and retirees, for example, face a number of challenges. A good thought leadership study will help them address one of those challenges.

Designing research that produces this benefit requires a deep understanding of:

• the issue being confronted, such as retirement planning

• how the issue is now being addressed and areas in which improvements should be made

• the target audience’s satisfaction with current approaches and their interest in new ideas

With these understandings, thought leadership programs can be constructed that provide very significant value.

By: Eric Sondergeld
9/10/2024

Check out almost any life insurance needs calculator and it is obvious that the largest component of the answer is an amount representing some multiple of income. Amounts are also typically included for immediate payoff of outstanding debt, college education, final expenses, and even items such as childcare and an emergency fund.

Other than digitizing these formulas in the form of online calculators, the theory behind them has remained largely unchanged for decades. Before that, we likely used rules of thumb of income multiples, many of which are commonly used in practice today. I see two main problems with this approach to estimating life insurance needs. First, the amount becomes quickly outdated. As time passes, fewer years of income replacement are needed, children may no longer be dependents, incomes have grown, debt gets paid down, or a larger home is purchased with a bigger mortgage, etc.  Second, if income replacement is indeed the largest component of the life insurance benefit, then why is the benefit not paid as an income?

There’s a way to address both of these issues. The first requires an admission that there’s a fair amount of double-counting going on in the current approach. If life insurance provides replacement income (whether paid in a lump sum or over time), that income presumably is currently being used to pay down debt, save for children’s college, etc. I can’t believe nobody has stopped to ask, “why do I need to replace my income AND some of the things it pays for?” or “Why is 10 years of income replacement the norm?” The second is to change the terminology from “death benefit” to “income amount.” If life insurance is to truly be an income replacement product, we need to present it and talk about it that way. For products intended to primarily replace income, we might eliminate the term “face amount” from our vocabulary. Instead, the conversation should be about how much income is needed and for how long.

The how much starts with your annual income and subtracting an amount for taxes (since the death benefit is not taxable) and perhaps a bit more since the income won’t need to support the insured after he or she has passed. In addition, an assumption for income growth can be incorporated. The length of time could be a number of years or, preferably, to a specific age. For example, a 40-year-old whose youngest child is 10 might expect to support that child until they reach age 22 and are out of college. That parent might buy coverage that replaces their income until they are 52. Another example is to replace income until an expected retirement age if there are one or more members of the household (or household expenses such as mortgage payments) reliant on that income. The life insurance benefit would be expressed as a monthly amount, just like with disability income insurance.

In fact, all the above ways of defining the benefit already exist within the disability income market. And like disability income insurance, the concept of face amount is a foreign one. The only remnant of one in this approach might be allowing for a modest lump sum benefit to cover final expenses. An added benefit is that the life insurance conversation dovetails nicely with the disability income insurance conversation. Creative companies could even develop a combination product that replaces income until retirement age, potentially at different amounts depending on whether the insured is disabled or dead.

Presenting life insurance as an income replacement solution offers the following additional benefits:

• The death benefit and its intent become clearer to beneficiaries, as it’s simply a continuation of the income that has supported them all along.
• Beneficiaries don’t have to figure out how to manage a lump sum payment, something people are generally not great at doing.
• It simplifies the conversation and removes complicated factors like amounts for debt and education and having to decide whether the income replacement (that is paid as a lump sum) should last (or more accurately, represent) seven, ten, or twenty years.

Making life insurance the true income replacement vehicle its meant to be requires a shift in thinking, benefit calculation, and terminology. Its positives are clear and can make purchasing life insurance easier for customers.

By: Eric Sondergeld
11/27/2023

So far in this series, I’ve covered the questions about when someone needs life insurance[1] what type they should buy,[2] and what makes life insurance special[3]. For us industry insiders, these may seem like simple questions. However, as I’ve demonstrated, identifying whether and when you need life insurance isn’t always obvious, and thus, the need may instead sneak up on most consumers. The question of “what type” can lead to more questions to which consumers may not readily know the answers. One of those questions is just how much life insurance to buy.

The question of “how much” is relatively unique to life insurance.         

Assuming someone has determined they might need life insurance (and even which type to buy), they must figure out how big a policy to purchase. This is something they don’t necessarily need to do when buying other types of insurance. Different health insurance policies share costs with the insured in different ways and may come with different maximums, deductibles, etc. With auto insurance coverage, the consumer can select from a limited set of options for bodily injury liability, property damage, etc. Home insurance coverage amounts are predicated on the value of the home. Disability income and long-term care insurance offer different coverage amounts, though the range of coverage amounts is much more limited than with life insurance.

How much do we need? There is no right answer.

When it comes to life insurance, there are seemingly countless needs calculators, rules of thumb, and other techniques for figuring out how much life insurance to buy. Different needs calculators provide a wide range of recommended amounts for a particular individual. Most ask questions that the consumer may not be able to easily answer, such as how many years of income replacement they want or need. Behind this question is an implicit assumption that life insurance is intended to help the policyholder’s loved ones recover financially following their death, but only for a time, after which they’ll need to support themselves. This is never explained to would-be buyers, nor do buyers explain to their beneficiaries why they bought life insurance and what the death benefit is intended to accomplish.

Payout options don’t align with the idea of life insurance as income replacement.

The fact that income replacement often contributes the most to the “how much” question suggests that life insurance is an income replacement product. Why then do policies pay a lump sum upon death? If beneficiaries were to read the policy, they would find that in most cases the ability to receive the benefit in installments exists. Yet at claim time, such options are seldom presented.

Coverage amounts diverge from needs as they change over time.

What’s more is that once a policy is purchased, the underlying “need” can change significantly over time. With most coverage having a level face amount, coverage amounts and underlying needs can diverge over time. There is usually no mechanism for proactively adjusting coverage to account for changes in these assumptions.

Life insurance is for the beneficiary.

In my previous blog on what makes life insurance so special, I reminded readers that life insurance is the only insurance where the insured is not the beneficiary. I argue that the two main benefits of life insurance are the peace of mind it brings to the insured and the financial benefit to dependents. If someone other than the insured is going to benefit from the policy, then shouldn’t we give more consideration to them in designing products, determining coverage amounts (over time), etc.?

It’s time to innovate around “how much” life insurance people need.

While there certainly have been many innovations in life insurance in recent years, such as life-LTC combination products, indexed universal life, etc., the basic structure of life insurance has remained relatively unchanged. The question of “how much” offers tremendous opportunities for innovation. This includes new ways to define how much (because there is no right answer), how benefits are paid, whether coverage amounts are set to change over time or could be changed as needed, designing for the ultimate user (e.g., the beneficiary), whether coverage is purchased all at once or over time, etc.

 

Please contact us if you’d like to test any of the above concepts or understand how consumers think about the “how much” question.

 

 

[1]Life’s Persistent Questions #1: When is the Best Time to Buy Life Insurance?

[2]Life’s Persistent Questions #2: What Type of Life Insurance Should I Buy?

[3]Life’s Persistent Questions #3: What Makes Life Insurance Special?

By: Eric Sondergeld
9/14/2023 Read more