The Whole Life Insurance Study began as a question concerning the impact modern communication technology had on the sale of life insurance–specifically whole life insurance. Given the freedom to publish content anywhere and everywhere with varying degrees of knowledge and expertise, the lines between true knowledge and conjecture blur a bit. As such, people develop opinions about the reality that guides their decision making. This adoption of ideals leads some to view certain subjects as more or less controversial than may actually be the case.
You don't have to look far to find differing opinions about whole life insurance. It is both great and terrible depending on whose web site or magazine you land on first. But these varying opinions are not new. Whole life insurance possessed diehard fans and diehard detractors for decades. While life insurance companies and sales agents obviously spoke highly of the product, competing services such as the A.L. Williams Life Insurance Company (now Primerica) and Waddell and Reed took up an opposing view many years ago.
Despite the success of A.L. Williams (in terms of his personal wealth accomplishments) and the later arrival of celebrity-like financial advice pundits (i.e. Suze Orman and Dave Ramsey), life insurance companies appeared to motor on profitably. Skip forward to now, and financial blogging becomes trendy among some with an occasional shot fired at whole life insurance in favor of buying term life insurance and investing the difference.
Today I'm not interested in discussing the merits of term and invest the difference or whole life insurance. I'm merely interested in the data that tells us if the wider availability of opinions (in both directions) affects the sale of life insurance–again specifically focusing on whole life insurance. So, I've gathered considerable data seeking to answer this question. The result of this data compilation and analysis is the Whole Life Insurance Study. The project morphed a bit beyond “are life insurers hurt or helped by various opinions about whole life insurance” and took on a role to check-in on the overall health of life insurers engaged in the issuance of whole life insurance.
Methodology for the Whole Life Study
The easiest and most accurate source of data for this project is in accounting statements prepared by life insurers. Life insurers must prepare accounting statements for state regulatory purposes that detail the company's capital positions as well as business operations. These statements are audited by third parties. This gives us a great view of the insurers accumulation of assets, success or failure in generating income with those assets, management of liabilities, and overall business operations.
Within this data, we can answers questions like:
- How many policies does the life insurer issue in a year?
- How much money does the life insurer make on life insurance policies?
- How much income does the life insurer create from the assets it manages?
- How well does the life insurer generate income as a function of its business operations?
- Is the life insurer profitable?
If we look at this data statically, we might draw inaccurate conclusions about the overall success or failure of an individual company or the entire industry. Instead, if we look at this data and how it changes over time, we get a better feel for how life insurance companies handle all business operations and get a sense of overall success or failure.
For the Whole Life Insurance Study, we used accounting data spanning the past five most recently available years. The exact timeframe is 2014 through 2018 (we're in the process of compiling all of the data for 2019 and will update this study next year with those results).
We specifically focused on operational data. In other words, we looked at data points like:
- Number of policies issued
- Average policy size
- Profits earned on life insurance as well as overall
- Dividends paid
We then calculated the average annual change in these data points to get a sense of the overall trend achieved by life insurers.
Because our focus is on whole life insurance for this study, our sample size used only insurers identified for a focus on issuing participating (i.e. dividend-paying) whole life insurance. We identified eight insurers for the study and used their accounting data to complete the study.
What follows is an aggregate capitulation on the data points analyzed, but if you are interested in more granular details, we are making it available.
Simply click here to get access to company-specific data, as well as calculated trend data for each company.
Total Number of Whole Life Insurance Policies Issued
One of the very first data points of interest was the number of policies issued by life insurers. If the consensus among American life insurance consumers is negative towards whole life insurance, we'd anticipate a decline in the number of policies issued over the time period. While the data we have did not parse specifically whole life insurance sales, our selection of life insurers in the sample size ensured that the majority of life insurance policies issued are whole life insurance.
In 2018, the eight life insurers in the sample size issued a combined 857,627 life insurance policies. The year-over-year trend for the five year period shows a 2.20% growth per year. This is certainly a positive trend for these life insurers. Some insurers had more success with this than others, but almost all experienced positive growth. Only one insurer in the group had an overall negative trend for the five year period.
Average Policy Size
In addition to the total number of policies issued, we wanted to know if people are buying more or less life insurance in the same time period. Looking at the average policy issued for each year, we can easily answer this question. Similarly to the total number of policies issued, if the overall opinion of whole life insurance is negative, we'd anticipate a negative trend for this data.
In 2018, the average policy issued by the companies in the sample was $596,738.13. According to data pulled from Ebix, that's 249% larger than the average policy issued across all life insurers in the same year.
There is a considerable spread across the sample companies. The largest average policy size in 2018 was nearly $1 million while the smallest average was slightly under $300 thousand. All of the life insurers included in the sample experienced an increase in year-over-year growth of average policy size.
Individual Life Insurance Profitability
Looking at the profitability of individual life insurance policies, we see results that vary considerably. While the overall average trend is positive, and positive by double digits. This result is overstated by large swings in the overall profitability of the product line.