Millennials–those born between 1981 and 1996– represent a sizable segment of the life insurance market. This population is now in their 20s to 40s, which can be the perfect time to buy life insurance with milestones like getting married, having families, and buying homes. However, despite the importance of financial planning, a recent study found that more than half of millennials don’t have life insurance.
So, how can advisors help address this coverage gap and ensure millennial clients have the financial security they need? First, we need to examine the root causes of the coverage gap.
The coverage gap
Perceived cost
Millennials may perceive life insurance as expensive, especially when burdened with student loan debt, housing costs, and other financial obligations. For example, federal student loan debt totals over $1.6 trillion, and millennials hold over one-third of this debt. In addition, housing prices have surged, with the average cost of a single-family home jumping 25% between 2019 and 2021. Therefore, they may prioritize immediate financial needs over long-term protection.
Lack of awareness
There is often a need for more education about life insurance among millennials. A study found that 55% of millennials are confused about how the process of getting life insurance works. In addition, life insurance is a complex product with, traditionally, a lengthy waiting and approval time, which can be off-putting to potential clients.
Delaying major life milestones
Millennials are marrying and having children later in life compared to previous generations. A survey found that these delays usually tie back to expenses. For instance, nearly a quarter of millennials delay getting married and having children due to rising costs. Since significant life events like marriage, homeownership, and starting a family often trigger the need for life insurance, the delay in reaching these milestones means they may delay purchasing coverage.
The importance of life insurance coverage
As mentioned above, the biggest concerns for millennials regarding coverage are cost-related. For advisors, it’s crucial to highlight the importance of life insurance both as a way to alleviate the costs of final expenses for loved ones and also as a wealth accumulation tool.
Life insurance can offer peace of mind and financial support to spouses and children after an unexpected death, covering mortgage payments, childcare, education, and everyday living expenses.
Secondly, end-of-life and funeral costs can be a major burden for loved ones. According to the National Funeral Director’s Association, the average funeral cost is nearly $8,000.
Life insurance proceeds can be used for these expenses, relieving financial strain on surviving family members.
Thirdly, life insurance serves as an essential estate planning tool. Millennials may not have substantial assets yet, but as they accumulate wealth over time, life insurance can help protect and distribute those assets according to their wishes through irrevocable life insurance trusts (ILITs). It can also facilitate the smooth transfer of wealth to heirs by providing liquidity to cover estate taxes.
Additionally, purchasing life insurance while young and healthy typically requires lower premium payments than waiting until later. By securing coverage early, millennials can lock in affordable rates and ensure financial protection for the long term. It will also preserve the client’s insurability in the unfortunate event of a severe illness or disease.
Using living benefits
Millennials can leverage living benefits in life insurance policies to address various financial needs and challenges. Under certain circ*mstances, living benefits allow policyholders to access a portion of their cash value or death benefit while still alive.
Critical illness coverage
Many life insurance policies offer critical illness coverage, which allows policyholders to access funds if they are diagnosed with a serious condition like cancer, heart attack, or stroke. Millennials facing a critical illness can use these funds to cover medical expenses or lifestyle adjustments during their recovery period without depleting their savings or retirement accounts.
Long-term care
Some life insurance policies include living benefits that cover expenses like nursing home care, assisted living facilities, or in-home care. Millennials who require long-term care due to illness, disability, or aging can tap into these benefits to cover the high costs associated with such services, ensuring they receive the care they need while preserving their assets for other purposes.
Terminal illness support
Living benefits can also be accessed by millennials diagnosed with a terminal illness, usually under circ*mstances where they have a life expectancy of 12 to 24 months. These funds can help cover end-of-life expenses like hospice care, palliative treatments, and other related costs, allowing individuals to maintain their quality of life and alleviate financial burdens for themselves and their families during a difficult time.
Supplemental income & wealth accumulation
Life insurance can be a great way for millennials to accumulate cash value on a tax-deferred basis. Over time, the policy becomes a valuable asset with cash value that can be accessed income tax-free through policy loans or withdrawals (if structured properly), providing a source of liquidity for buying a home, funding education, or supplementing retirement income. By starting a permanent life insurance policy now, clients ensure financial protection and lay the groundwork for long-term financial security.
Tailoring life insurance to millennials
When selling life insurance to millennials, it’s important to highlight several factors:
Flexible coverage options
Offer policies with flexible coverage options that can be adjusted to accommodate millennials' evolving life stages and financial situations. This could include increasing coverage as their income and responsibilities grow or decreasing coverage during periods of lower financial need. Many products also have flexible premium provisions, so reducing or skipping a premium payment may be possible without reducing coverage. However, an analysis should be done to ensure the policy will stay in force.
Affordable premiums
Millennials often prioritize affordability, so provide options for policies with competitive premiums, especially for those with limited disposable income. Highlight the cost-effectiveness of purchasing coverage at a younger age to lock in lower rates.
Digital accessibility
Advisors should recognize millennials' preference for digital solutions by utilizing a digital broker, like Modern Life, that offers an easy online intake, quoting, and application process and the ability to share quote comparisons quickly.
Customized riders
Offer customizable policy riders that cater to millennials' unique needs and concerns. This could include riders for critical illness coverage, long-term care benefits, or disability income protection, providing additional financial security and flexibility.
Educational resources
Provide educational resources, like blog posts or webinars, to help millennials understand the importance of life insurance and navigate the complexities of different policy options.
Accessibility and transparency
Be accessible and transparent in all aspects of the insurance process, from policy selection to claims processing. Communicate clearly about policy terms, coverage limitations, and potential exclusions, ensuring millennials fully understand what they are purchasing and what benefits they are entitled to.
Case study
We asked Modern Life advisor and Director at Arta Finance Geoff Tully how he ensures his millennial clients have the best coverage. Tully works with a number of high-net-worth millennials, financial professionals, entrepreneurs, and other individuals in need of sophisticated coverage.
With regard to millennials, Tully told Modern Life that he found millennials, in comparison to other generations, to be more “risk-aware.” That is, they “value having flexibility and an “escape hatch” in their financial and estate planning strategies,” potentially due to coming of age during the Great Financial Crisis.
Millennials may be less focused on the internal rate of return (IRR) of their life insurance options compared to other generations. Tully says, “They want to use life insurance to build flexible liquidity.” Tully meets these needs by “strik[ing] a balance between offering policy choices without overwhelming them.”
Since millennials are between the ages of 28 and 43, Tully generally recommends a convertible term or a flexible payment permanent policy. “These options can allow the client to break even more quickly and accumulate tax-advantaged cash,” says Tully, in addition to the peace of mind of “knowing their loved ones will have access to the death benefit.”
In one scenario that Tully discussed, a millennial couple purchased a term policy after their child was born but wanted to convert that to a permanent policy for greater flexibility and cash value growth. “Changing to a permanent policy helped my clients lock in a source of capital for retirement, which freed them up to take greater risks with their other investments while setting aside an inheritance for their children,” says Tully.
Tully recommends that advisors “lead with transparency and quality” when working with younger clients. He recommends offering flexible products and “involv[ing] your millennial clients more heavily in the process than other generations without overwhelming them.” That means communicating risks clearly up front and including strategies for how they can mitigate their risks, such as “utilizing multi-carrier portfolios or guarantees.”
Next steps
By adopting these strategies, life insurance advisors can effectively tailor policies to meet millennials' diverse needs and preferences, helping them secure essential financial protection and achieve their long-term financial goals.
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