When most people think about life insurance, they think about protecting their loved ones in the event that something were to happen to them. While this is certainly one of the main reasons to have life insurance, it’s not the only one!
There are actually a number of different target markets for life insurance, and each has its own unique needs.
The target market for life insurance policies can vary greatly depending on a person’s age, health, occupation and most of all, family situation. In this article, we will take a look at who typically considers buying life insurance and who doesn’t. We will also discuss some of the factors that go into choosing a specific life insurance policy.
What is Life Insurance?
Life insurance is a contract between an individual, the insured, and a life insurance company.
In exchange for the insured individual paying regular premiums, the life insurance provider pays out death benefits to the beneficiaries named in the life insurance policy, in the event that the insured individual passes away while the policy is still in effect.
The premium payments are typically based on factors such as age, health, and the type of life insurance policy purchased.
What are the main types of Life Insurance?
There are two main types of life insurance policies: term life and whole life.
Term Life Policy
Term life is a pure protection policy that provides coverage for a specific period of time, such as 20 years. If the insured individual dies during the term of the policy, the beneficiary receives the death benefit payout. If the insured person survives beyond the term of the policy, there is no payout and the policy ends.
Whole Life Policy
Whole life policies are designed to provide lifetime coverage, as long as premiums continue to be paid. Some policies also offer a cash value that can be accessed in certain circumstances.
Who is the Target Market for Life Insurance?
The Target Market for Life Insurance can be classified into these segments:
- Individuals with financially dependent family members
- Individuals with a chronic health condition
- Individuals with high-risk jobs
- Individuals with a mortgage
- Individuals with large debts
1. Individuals with financially dependent family members
People with young children or elderly parents who depend on them for care may need life insurance. In these cases, the death of the primary caregiver could create a lot of financial stress for the remaining family members. A life insurance policy can provide peace of mind in knowing that loved ones will be taken care of financially if something happens to the insured.
Individuals who are married or remarried with children from prior relationships may need life insurance because it can be used to protect their loved ones’ inheritance in case of death and ensure that the proceeds are not reduced by estate settlement costs (such as lawyer fees, taxes, and probate costs).
People who look for life insurance, typically also have a need for other financial services like budgeting help, education and retirement planning and investment planning.
2. Individuals with chronic health conditions
People with chronic health conditions are a target market for life insurance. A life insurance policy can provide peace of mind in knowing that loved ones will be taken care of financially if something were to happen to them.
This is especially important because the treatment of chronic illnesses can already be a strain on family finances, and death together with the complete loss of income can only put an extra financial burden on their family, on top of dealing with the loss of a loved one.
This market can be segmented based on the benefits of a combined health and life insurance policy since someone with a chronic illness will be need of both.
3. Individuals with high-risk jobs
Individuals with high-risk jobs are also a target market for life insurance if they have dependents or other obligations that would be difficult to meet in the event of their death.
High-risk jobs include those of police officers, firefighters and military personnel. These occupations tend to involve a greater risk of injury and death.
4. Individuals with a mortgage
Individuals with a mortgage need life insurance because their death could result in the lender foreclosing on the property. The proceeds from a life insurance policy can help pay off the mortgage and allow other family members to keep the home.
Many home loans require a policy with sufficient coverage to pay off the outstanding balance in the event of the death of the person in whose name the mortgage has been taken.
5. Individuals with large debts
Individuals with substantial amounts of debt, such as mortgages, business loans, and credit card debt are generally in need of life insurance. Such individuals are different than those with a mortgage because a mortgage at least has the real estate backing it up, whereas personal debt is typically unsecured.
But many people have both – mortgage loans and private loans.
Consider this scenario: A single woman with two kids dies when she is 45 years old. She has a $250K loan on her house and roughly $30K in credit card debt. Her family will most likely be unable to pay off the house loan and will need to sell the house. If she had sufficient life insurance, her family would receive the payout from the policy and could use it to pay off the mortgage. Without life insurance, her estate would be responsible for paying off both the mortgage and the credit card debt, which could be a near-impossible task.
Who is (usually) not the Target Market for Life Insurance?
While life insurance can be of benefit to most people, there are some people who are just not a target market for life insurance and insurance salespeople would, in most cases, not lose time marketing to such people.
Here are some examples of individuals who, in normal circumstances, would not constitute the target market for life insurance:
- Individuals who are single with no dependents
- Wealthy individuals
Single Individuals with no dependents
Individuals who are single with no dependents, generally do not purchase life insurance because they do not have anyone who would be financially dependent on them in the event of their death. Also, many single individuals are young and so they tend to feel that they are not at as great a risk of dying as are those with dependents. And so life insurance is less important to them.
Wealthy Individuals
Extremely wealthy individuals generally do not purchase life insurance because they do not need to. If they die, their estate is sufficient enough to pay off any debts and financial obligations that they leave behind. They could feel that life insurance would give them little value in return for the premiums they would have to pay into the policy over many years.
Summary
- Life Insurance is a contract between the insurance company and the policyholder that guarantees a payment of a certain sum of money to beneficiaries indicated in the insurance policy in the event of the policyholder’s death, in exchange for the payment of monthly premiums.
- Life Insurance is important because it can protect a person’s loved ones in the event of their death, and help to ensure that they are able to pay of debts and maintain their standard of living.
- The target market for life insurance can be broadly categorized into four groups: Individuals with dependents, Individuals with chronic health conditions, High-risk job holders, Individuals with a mortgage, and Individuals with large debts.
- While there are some people who are not a part of the target market for life insurance, such as wealthy individuals and single individuals without dependents, most adults could benefit from having a life insurance policy and therefore form a part of the target market for life insurance.