Data & Research August 26, 2011

Life Insurance Too Often Left Out

Financial advisers often miss the opportunity to speak to their clients about the important role life insurance products can play in financial planning, according to a recent survey by Saybrus Partners, Inc.
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Results of the survey showed that only about half of adults who currently have a financial adviser and a financial plan have ever discussed adding life insurance to their plans.

“We believe life insurance is foundational for a well-designed financial plan, not only for the protection it provides but also its tax efficiency, and potential for cash accumulation and wealth transfer,” said Kevin Kimbrough, national sales manager for Saybrus Partners. “The survey affirmed statistically what we have heard anecdotally for years — financial advisers often do not discuss life insurance during the financial planning process. They are missing an opportunity to fill a critical gap in some existing financial plans while at the same time differentiating themselves and expanding their practices. Additionally, there are benefits to including assets such as life insurance that are not tied to the financial markets and therefore not subject to the same volatility we are currently seeing.”

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About half (49%) of U.S. adults who have a financial adviser and a financial plan have spoken with their adviser about adding life insurance to their financial plan.

Among those who have discussed life insurance with their advisers, 15% said the conversation took place more than 10 years ago, while 40% have discussed it within the past year. While this may indicate that discussions about life insurance are becoming more common, they do not necessarily include a review of existing policies for critical issues such as performance, affordability and potential policy lapse. According to the study, nearly half (47%) of U.S. adults who have a financial adviser and have life insurance said their advisers have never reviewed their existing life insurance policy with them.

One-third (34%) of U.S. adults who have a financial adviser and a financial plan said that over the last two years, their adviser has recommended that they add some form of insurance to their financial plan. However, less than one quarter (24%) were advised to include life insurance specifically. Only 10% said their adviser had recommended long-term care insurance.

“Life insurance can be complex, and many advisers are reluctant to introduce it into the financial planning conversation. However, some of these financial professionals are finding that they can use outside specialists to help them advise their clients on the most effective and efficient life insurance uses for each unique portfolio,” Kimbrough said.

The most fundamental role of life insurance is to protect families/heirs with a death benefit, and 81% of U.S. adults who have a financial adviser and have life insurance said the a primary reason they carried such policies was to protect their family and/or heirs. Only 17% cited wealth transfer as a primary reason they had life insurance and 15% cited the potential for cash accumulation, which is a key feature of many permanent life insurance policies.

"These statistics demonstrate that typical life insurance policyholders may not be aware of the many other uses for life insurance beyond family and heir protection," Kimbrough said. "They may be relying on IRAs or annuities for wealth transfer, which are designed for asset accumulation and retirement income but not for wealth transfer, especially from a tax perspective. Life insurance offers potential for tax-efficient cash accumulation, which can be accessed for a variety of reasons including supplemental retirement income or health care costs, as well as a tax-efficient vehicle to provide for heirs."

According to the survey, more than four out of five U.S. adults who have a financial adviser and life insurance (83%) said they would be interested in life insurance policies that carried additional features not present in their current policy, with varying degrees of interest in specific features. For example, 30% said they would find a feature that would allow them to receive the life insurance payout as income if they were diagnosed with a terminal illness beneficial. Another 28% of indicated coverage for long-term care needs would be beneficial, and 18% thought a waiver of premium payments if they became disabled would be a beneficial addition to their policy.

"Clearly, consumers are interested in getting more from their life insurance policies. Given the well-known concerns about healthcare costs that dominated the national news last year, this relatively modest interest in health-related benefits is likely due to lack of knowledge of how they would work. This is another opportunity for financial advisers to help their clients maximize the benefits they can get from their life insurance," Kimbrough said.

The survey asked U.S. adults with a financial adviser to indicate areas where they expect their adviser to be knowledgeable. The highest expectation (70%) was for mutual fund knowledge, followed closely by stocks and equities (68%). Just 38% said they expected their adviser to be knowledgeable about life insurance.

This survey was conducted online between July 22nd and 26th, 2011 among 2,410 adults (aged 18 and over) by Harris Interactive on behalf of Saybrus Partners.

 

Data & Research August 26, 2011

Sparse Charitable Giving Expected this Year

Nearly seven in 10 Americans (68%) say they will give more sparingly to charity in the coming months, according to a study conducted by Campbell Rinker on behalf of Dunham+Company. 
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Another one in 10 plans to stop giving altogether until the economy gets back on track.

Even though donors are likely to decrease the amount they give, charities can anticipate that individuals loyal to their cause will continue to give, as nearly 8 in 10 donors (78%) say they intend to keep financially supporting the charities they have in the past. This is especially true of donors ages 40 to 59, a key demographic for philanthropy, as well as those younger than 40.

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“The findings of our study are not surprising, but they are a real concern because charities have just started recovering from the worst decline in giving in U.S. history,” said Rick Dunham, President and CEO of Dunham+Company.

“According to Giving USA 2011, U.S. charitable giving dropped $30 billion annually from 2007 to 2009. Giving recovered slightly in 2010 and has continued to make a comeback in 2011,” said Dunham. “But now it looks like charities are in for some more rough waters with the economy in such disarray.”

Charities will find gaining new donors to be especially challenging as only two in 10 respondents (22%) said they would consider providing gifts to organizations they have never before supported. The study shows that the more people feel as if the economy is in decline, the more they are unwilling to support another charity. Older donors are extremely skittish about the economy and less willing to take on a new cause. Nearly nine in 10 people older than 60 are less willing to support a new cause (86%) compared to just 64% of donors younger than 40.

The study also found that donors who give online are more likely to continue to do so than those who don't give online. Six percent say they will stop giving compared to 15% of those who don't give online. And they are more likely to cut other expenses before cutting charitable donations (14% versus 9%) and say that giving will be one of the last things to eliminate (12% versus 8%).

Nearly nine in 10 online donors (85%) say they will continue to assist the causes they have supported in the past, compared to only 71% of those who don't give online. And those who donate online are nearly twice as likely to begin supporting another charity, compared to donors who do not give online (28% versus 15%).

"Our research has shown that online donors are more highly educated and have higher household incomes than donors who do not give online," said Dunham. "Charities will do well to focus attention on these donors to maintain their support and to find ways to acquire other donors via the web."

The study shows that the top three factors impacting the donor's willingness to give are directly related to the economic climate across the U.S. They are, in order: (1) reduced income due to job loss; (2) the rising cost of personal or living expenses; and (3) uncertainty over the economy. This should be a concern for charities because nearly half (43%) of those surveyed believe the economy will continue to decline, with 31% saying they believe it will stay the same and only 17% feeling the economy will improve.

The study paints a brighter picture for houses of worship, as 95% of those who regularly attend religious services plan to continue giving, with one-third of that group indicating they are more willing to give in the coming months. In fact, those in this group are four times more likely to cut back on other expenses to continue donating compared to those who don't attend religious services, and twice as likely to say that giving will be among the last of their expenses to be cut.

The study was part of a Campbell Rinker Donor Confidence Survey of 497 adults nationwide who had donated at least $20 to charity in the previous 12 months. All responses were gathered online from August 12-15, 2011.

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