People often think about insurance in a purely transactional sense. They view it as the purchase of a product that they may or may not use just in case they experience a certain type of loss. Of course, this is one of the fundamental purposes of insurance, but thinking about it this rigidly strips away much of the societal value insurance holds.
There is another way of looking at insurance. A way that looks at it in a more communal, mutually beneficial sense. A way that puts it in a light that shows its contribution to the common social good.
To properly illustrate this point, it helps to look at the concept of insurance in visual terms. For example, picture a community in which everyone contributes to a shared pot of money, from which they can draw should they experience a certain type of need. When you have few needs or your likelihood of experiencing a need is relatively low, you contribute relatively little, and as your risk for exposure or number of potential exposures increases, you begin to contribute more.
That’s what insurance truly is. You’re not just transferring the risk to the insurance company – you’re making a contribution, not just to your own protection but the protection of those who are in the same boat you are.
Everyone encounters certain needs for protection. For the most part, those who share similar life circumstances have similar needs. The similarity of these needs is what created the opening for an industry in which shared contributions help make sure nobody’s life is completely derailed by a loss. Looking at it through this lens, insurance becomes fundamentally about providing coverage for the types of needs we all share.
What many come to learn, though, is that as your life circumstances change, so do your protection-related needs. The number of needs typically grows, requiring the purchase of several additional types of coverage. However, rather than spreading contributions across several separate pots for several separate needs, what if you could consolidate these contributions into fewer larger pots? In other words, what if there was an insurance product that changed as your needs did?
Shifting the discussion to the Long-Term Care insurance [LTCi] industry in particular, an idea for a new type of coverage which uses this sort of line of thinking has been gaining traction – a combination product that begins as renewable term life insurance and has a built-in conversion option that guarantees conversion to a traditional LTCi policy at a specified age1. This type of coverage, while only purchased once, grows as you do by transforming in line with your own shifting priorities.
With a product like this, individuals get a relatively low-cost solution for life insurance protection during prime income earning years, and then have the option to convert that coverage into LTCi at a more appropriate age. LTCi premiums can be expensive, especially if one waits too long to decide to buy coverage. Combined with the fact that the risk of being declined also increases as one ages, having the term life with a guaranteed conversion privilege could be a perfect way to get guaranteed coverage that will likely costs less in the long run.
This is just one specific example that pertains to our sub-section of the industry, but the philosophy has greater implications for the industry at-large, as well as people’s perception of it. There is demonstrable interest in coverage that grows and adapts as you encounter different life events. If coverage could change as your needs did, perhaps people would look at insurance in a less detached way. Perhaps they would look at it less like a contingency plan for something that may never happen, and more like a common well, shared by those with similar types of needs, from which they can draw when any sort of protection-related need arises.
- “Long-Term Care in America: Expectations and Preferences for Care and Caregiving”, AP-NORC Center, 2016