The normal rules of search, compare, and buy for consumers are altered in the case of risk in general, and life insurance in particular. Let us re-cap on why this is, addressing ourselves to consumers:
1. You don't know that you need it.
Because you have grown up learning that it is best not to think about dying - or even risk - to any great degree, then the simple fact of death is given little reflection. The western world is safer than it has ever been - sudden accidental death which cuts people off in their prime is, thankfully, a rarity. Older people live longer than expected, and tend to be emotionally further from us: 100 years ago it was normal for a parent to die while we were still at work. Today that is usually a grandparent.
2. You don't know what the risk is.
You have little idea of what the actual risk is. Individuals may not understand that they have a working life risk of death of about 15%. For couples the working life risk that one of the two will die is nearly double. For business partners - say four men working together - the working life risk that one will die is above 50%. Few people understand that while rare, the incidence remains high enough that, as an insurance broker I know likes to say: "If that was the lottery, you'd buy a ticket".
3. You probably haven't experienced it.
Of course you haven't died yet. What is more, you haven't had to make a death claim for someone close to you. You haven't seen life insurance at work, so how do you appreciate it's value. What's more, how do you form a view about the reliability of the promise?
4. You can't test drive this year's model.
Even if you have filed and been paid an insurance claim - say, for a parent's death, or a business partner - you were seeing the results of a policy which was bought a number of years ago. The policy wording, the rates, and even the company you are contemplating insuring with today will - in all likelihood - be different.
5. It's hard to see how a promise works.
Life insurance is a promise. Consumers are increasingly sceptical of promises made by companies. The last few years has battered the reputations of large financial institutions. How valid is a promise made to pay out a very large sum at a distant point in the future? What would you look for to make an assessment of that promise.
6. It's long-term.
It is one of the longest term decisions you will ever make. Most people live in their house, hold a job, and own a car for shorter periods than they will own their life insurance policy. It is hard for consumers to comprehend how long this promise must stay valid for - and what that means about the company they are buying it from.
7. You are no good at assessing financial strength
You don't generally read sets of accounts, understand reinsurance, or the predictable nature of life insurance claims. How will you assess the financial strength of the company that you deal with?
8. You can't imagine how that much money might not be enough.
The sums seem incredible. To replace a lowly $50,000 income per year indefinitely requires $1million. That often causes consumers headaches.
Which is why consumers end up taking a number of seemingly inexplicable short-cuts to make a decision - such as:
- They use proxies for financial strength (solid logo, good brand, good adviser)
- They seek too few alternatives - price comparison shopping remains a rarity
- They buy on price - ah well, may as well get the cheapest
- They avoid displaying a lack of knowledge - don't want to think about it
- They buy from low involvement channels - because it is more comfortable to buy something you don't understand from someone who will not challenge or expose you
- They under-prioritise the investigation - you will spend far more time choosing curtains, for example, than choosing life insurance
- Having bought it - they avoid reviewing it