What determines life insurance popularity?

Lisa GardnerA Bankrate survey of life insurance statistics found that the three states with the highest marriage rates -- Utah, Idaho and Wyoming -- are not the top states for life insurance coverage. We identified the life insurance leaders by dividing the numbers of life insurance policies in force in each state by population.

However, factors other than marriage rates probably have a bigger impact on life insurance coverage, says Lisa Gardner, associate professor of statistics and insurance at Drake University in Des Moines, Iowa. She outlines her thoughts in the interview below.

We compared the latest insurance industry statistics with the U.S. census data on marriage and found that the top states for tying the knot -- Utah, Idaho and Wyoming -- are not the top states for life insurance. In your opinion, why is this?

Let's think about the top states for life insurance. There are many ways to determine which states are top, including:

  • Premiums per capita.
  • Benefits payable per capita.
  • Premiums as a percent of gross domestic product.
  • Total premium volume.
  • Number of insured lives.
  • Number of policies in force per capita.

I prefer using measures that include benefits payable or premium volume because they reflect the economic significance of life insurance. So I want to raise the question of whether you are using the right measures to consider the importance of life insurance.

Let's consider how differences in policy benefit amounts could affect the number of policies sold. In the South and, to a lesser extent, the Midwest, a form of low-face-amount life insurance called industrial life insurance was very popular during part of the last century. Also called debit policies, these policies were sold door-to-door and required a small weekly or monthly premium payment to remain in force. The policies provided an affordable option for many lower-income folks who might not otherwise be able to afford life insurance. The face amounts varied but were typically low. (Less than $10,000 was normal.)

In order to get enough coverage, a policy owner might need to purchase more than one policy. In fact, it was not unusual for a policy owner to have more than one debit policy. Hence, one might observe higher-than-normal numbers of policies in force per capita in the states where industrial life insurance was widely sold. That does not mean that life insurance is more economically important in these locations. One can own, say, two low-death-benefit policies, (such as) $5,000 death benefits, and have considerably less protection than if one owns a single $50,000 death-benefit policy.

What it means is that benefit amounts help explain how many policies get sold. Industrial life insurance policies were not sold much, if at all, in places like Wyoming, Utah and Idaho. They were sold widely in the South and Midwest.

Besides differences in face amounts, another reason why states might have different numbers of policies in force per capita is because of population per square mile. The states of Idaho, Utah and Wyoming are very large states, among the 15 largest in the country. They are also among the 10 least densely populated. If a person wants to make a living selling (a) life insurance product, it is a very good idea to live around other people, and lots of them.

Life insurance is a voluntary policy, meaning that there are no state laws that require one to purchase it or something similar (unlike, say, auto liability insurance). When approached, most people will not want to talk about life insurance. Of those who do, few will actually purchase a policy. In a place like Wyoming, a state with fewer than 600,000 people spread out over almost 100,000 square miles, one might have to drive a lot of miles to make a living as a life insurance agent. Thus, I would expect fewer policies to be sold in Wyoming simply because it is harder to find people to insure.

The prospects for selling life insurance seem a little more hopeful in Idaho and Utah, with a few more densely populated urban areas found in each, and of course, with Salt Lake City dominating the population of Utah. Still, one has to consider whether a lower number of life insurance agents per capita helps explain lower numbers of policies sold per capita in these states as opposed to some others.


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