A review of life insurance sales statistics and selected U.S. Census data offer interesting information on the relationship between macroeconomic changes and demand for term life insurance. LIMRA’s annual U.S. Individual Life Insurance Sales Trends and demographic trends from the U.S. Bureau of the Census suggest that term sales recover relatively quickly following an economic downturn.

Income Declines and Term Sales
As one would expect, annualized new premium (ANP) for term is sensitive to changes in real income. Most life insurers focus on households with incomes in the top 40 percent group, those making $62,000 a year and up. These households experienced fewer decreases in income than households with lower incomes. In the 21 years during 1986-2006, their real mean income fell in five calendar years (24 percent). During the same period, real mean income for the lower 60 percent group fell in eight years (38 percent).

Income Recovery Following Economic Slowdowns
Following the onset of the 1990 downturn, it took the top 40 percent about three years to regain their former peak income level. It took the lower 60 percent about seven years. The recovery following the 2001 downturn was more challenging. The top 40 percent group took about five years. The lower 60 percent group has yet to fully recover.

Term Sales Recover even Faster
Declines in term ANP are rare. The last three occasions when term ANP declined were: 1989 (-4 percent), 1991 (-5 percent) and 2001 (-11 percent). Three years were required for term ANP to recover fully from the 1990s' downturn, and term sales were setting new peaks within two years after the 2001 downturn. Growth in term ANP is remarkably steady when compared to other types of life insurance (see chart below).

 

Annualized New Premium
Number of Down Years: 1986-2006



LIMRA sales data show that term life experienced three years of ANP decline compared to 12 years for UL and whole life between 1986 - 2006.

Customers remain interested in insurance products. According to an October 2008 LIMRA survey, only two percent of respondents said they were considering a decrease in their life insurance coverage as a result of current economic conditions; 10 percent answered they were considering an increase. For many of these families, affordable term coverage represents the first option available to them. For others, it is the easiest type of coverage to maintain during challenging times.

By November 2008, the S&P 500 had fallen 53 percent off of its October 2007 highs. Based on a December 2008 LIMRA survey, consumers are nervous about 2009: 42 percent of respondents said that conditions will worsen moderately or significantly over the next 12 months, and 21 percent felt it was somewhat likely or very likely that they would put off buying insurance. While these consumers may delay their purchases for a while, historically speaking, term sales begin their recovery relatively early in the economic cycle.