Facts + Statistics: Life insurance

 

Life insurance ownership

In 2020, 54 percent of all people in the United States were covered by some type of life insurance, according to LIMRA’s 2020 Insurance Barometer Study. Other findings from the study include:

• While historically, most consumers preferred in-person sales, by  2020 most consumers preferred other distribution methods like phone, mail and online.
• The proportion of consumers who preferred internet/online sales grew from 17 percent in 2011 to 29 percent in 2020. This increase reflects the COVID-19 epidemic lowering the popularity of in-person sales.
• LIMRA says there was a “needs gap” of 16 percent in 2020, which translates to 41 million consumers who say they need life coverage, but do not have it.
• Americans consistently overestimate the cost of term life coverage. Half the population estimate the cost of life insurance at more than three-times the actual cost.

 

2020 financial results

Net income after taxes for the life/annuity insurance industry fell 50.5 percent in 2020 to $22.2 billion from $44.7 billion in 2019, according to S&P Global Market Intelligence. Contributing to the decline in net income after taxes was a 36.2 percent decline in net income before capital gains and a capital loss of $10.7 billion. Premiums and annuity considerations fell 7.9 percent in 2020, following substantial growth in 2019, as annuity premiums and deposits, the largest sector for revenue, fell 13.3 percent. Expenses fell slightly in 2020, down 2.1 percent. Capital and surplus rose to $440.0 billion in 2020, up 4.3 percent from $421.7 billion in 2019, according to S&P Global Market Intelligence.

 

Life/Annuity Sector

Traditional life insurance is no longer the primary business of many companies in the life insurance industry. The emphasis has shifted to the underwriting of annuities, which accounted for 48 percent of life/annuity direct premiums written in 2018. Annuities are contracts that accumulate funds or pay out a fixed or variable income stream. An income stream can be for a set time period or over the lifetimes of the contract holder or beneficiaries. Accident and health insurance, which includes distinctive products apart from traditional health insurance, accounts for 27 percent of direct premiums written. Traditional life insurance products such as universal life and term life for individuals, and group life, remain an important part of the business, making up the remaining 25 percent of direct premiums written. In addition to annuities, accident and health, and life insurance products, life insurers may offer other types of financial services such as asset management.

Traditional health insurance, which is not included in this section and are not considered a part of the life/annuity sector, are described under Private Health Insurance. Health insurance pays for medical, surgical and hospital services received by the insured, as well as routine and preventive care, usually within a network format. Of the many types of plans available, most include a deductible paid by the insured, and benefits received are tax-free. Accident insurance and health insurance, which is included in the life/annuity and property/casualty (P/C) sectors, encompass a variety of specialty products related to health, such as reimbursement for the time a policyholder spent in a hospital or was disabled; short- and long-term disability based on employment; long-term care, and critical or catastrophic illness insurance. Accident and health insurance are not meant to replace health insurance.

 

Premiums by line

Annuities are the largest life product line as measured by direct premiums written and accounted for 48 percent of direct premiums written by life insurers in 2020. Accident and health insurance accounted for 27 percent of direct premiums written. Accident and health insurance, not to be confused with traditional health insurance, includes reimbursement for certain medical expenses. These include: short- and long-term disability; critical or catastrophic illness insurance; and long-term care. Life insurance accounted for the remaining 25 percent of direct premiums written. Life insurance policies can be sold on an individual, or ordinary, basis or to groups such as employees and associations. Other lines include credit life, which pays the balance of a loan if the borrower dies or becomes disabled; and industrial life, small policies whose premiums are generally collected by an agent on a weekly basis.

 

Credit life insurance

Credit life insurance, a form of decreasing term insurance, protects creditors such as banks. The borrower pays the premium, generally as part of the credit transaction, to cover the outstanding loan in the event he or she dies. The face value of a policy decreases as the loan is paid off until both equal zero. When loans are paid off early, premiums for the remaining term are returned to the policyholder. Credit accident and health, a similar product, provides a monthly income in the event the borrower becomes disabled.

 

Investments

Life/annuity and P/C insurers are key players in capital markets, with $9.0 trillion in cash and invested assets in 2019, according to S&P Global Market Intelligence. Life insurance and annuity cash and invested assets totaled $4.3 trillion in 2019, and separate accounts assets and other investments totaled $2.8 trillion. P/C insurer cash and invested assets were $1.9 trillion in 2019.

Because life insurance products are long-term, generally in force for 10 years or longer, payments are predictable. Therefore, life/annuity insurers invest primarily in long-term products. In 2019 life insurers, excluding separate accounts, invested 71 percent of their assets in bonds and 2 percent in corporate stocks. Life insurers invested 13 percent of their assets in mortgage loans on real estate that take seven years or longer to mature.

 

Distribution channels

Life insurance was once sold primarily by career life agents, captive agents that represent a single insurance company, and by independent agents, who represent several insurers. Now, life insurance is also sold directly to the public by mail, telephone and through the Internet. In addition, in the 1980s insurers began to market annuities and term life insurance through banks and financial advisors, professional groups and the workplace. A large portion of variable annuities, and a small portion of fixed annuities, are sold by stockbrokers.

From 2010 to 2019 independent insurance agents’ share of the individual life insurance market grew to 53 percent from 48 percent. The direct response channel also grew, from 4 percent to 6 percent. Affiliated agents have lost some ground, falling from 41 percent to 36 percent, as shown in the chart below.

 

Life Individual Market Share by Distribution Channel, 2010 and 2019

 

life_ind_mark_share_by_distr_chan_10-19.gif

(1) Includes brokers, broker-dealers, personal producing general agents and registered investment advisers.
(2) Includes agency building, multiline exclusive and home service agents.
(3) No producers are involved. Excludes direct marketing efforts involving agents. Includes internet sales where consumers submit online applications.
(4) Includes financial institutions, worksite and other channels.

Source: U.S. Individual Life Insurance Sales Trends, Industry Estimates, 1975-2019, LIMRA, 2020.

View Archived Graphs

 

Online sales

Studies from the Life and Health Insurance Foundation for Education (LIFE) and LIMRA show how purchasing preferences for life insurance have changed over the past five years. The 2020 Insurance Barometer Study found that in 2016, 51 percent of respondents to the poll preferred in-person sales. By 2020 that proportion fell to 41 percent. Most of the 10 percent decline was attributed to the increase in the number of life insurance customers who preferred to purchase the insurance online. That number grew from 21 percent in 2016 to 29 percent in 2020. The 2020 study was conducted in January 2020, among 1,997 online respondents. LIFE and LIMRA note that the COVID-19 pandemic will result in an even higher proportion of life insurance customers avoiding in-person sales, thus raising preferences for online purchasing and other channels. Of note the 2021 Insurance Barometer did not address purchasing preferences.

Another finding in the 2020 poll is that the majority of life insurance customers consult the internet to get information on life insurance products. About one-third (34 percent) of poll respondents said they go online to a company website when researching an insurance brand. Twenty-seven percent of respondents said they go to whatever website their search turns up first, and an equal proportion say they go to their local agent’s website. Only 12 percent said they would not use an online search.

 

Other sales channels

Worksite Life Insurance Sales By Line Of Business, 2018 worksite_life_ins_sale_by_lin_of_bus_18.jpg (1) Short-term and long-term disability. Source: Eastbridge Consulting Group, Inc. View Archived Graphs

Worksite marketing is the selling of voluntary (employee-paid) insurance and financial products at the worksite. The products may be on either an individual or group platform and are usually paid through periodic payroll deductions. Worksite sales of life and health insurance totaled $8.51 billion in 2018, up 4.5 percent from 2017.

 

Separate Accounts

Separate accounts are funds held by life insurance companies that are maintained separately from the insurer’s general assets. They were originally established in response to federal securities laws concerning investment-linked variable annuities, according to the National Association of Insurance Commissioners. Variable annuities operate like mutual funds because their earnings vary as they invest in many different vehicles. Separate accounts have evolved rapidly in the past 20 years and now support an array of hybrid investment products.

Separate accounts contribute to the revenue of life/annuity insurers. (See Life/Annuity Insurance Income Statement, 2015-2019, above). In 2019 separate accounts contributed $36.8 billion to the total amount of life/annuity insurance revenue of $922.3 billion.