Recent graduates struggle with the decision to buy life insurance. The problem is people don’t do their own research on life insurance. Most people just follow the instructions of the insurance salesman. The goal of an insurance salesman is to make the most profit by selling the most expensive insurance. Unfortunately, life insurance gives people a false sense of protection as people believes it will save their lives.
Lawrence A. Crosby and Nancy Stephens believe that life insurance is too expensive. They believed it is crazy how life insurance companies can charge a high price for a product that gives no value at all. Life insurance has no present value and potentially have no future value if the client doesn’t die. According to an FTC staff, life insurance is a product that measures the client’s future net value (Lynch and Mackay 1985). Crosby believes life insurance is expensive because of a marketing technique called relationship marketing. Relationship marketing is when the client and salesman interact each other and form a meaningful relationship. It shows a higher rate of success of getting customers to buy their expensive life insurance. The authors dislike this method because it’s a form of brainwashing as it cause customers to have a different image of the product. The main issue is relationship marketing is their main method of advertisement for life insurance relationship. The industry is taking advantage of people’s emotions to convince people to purchase their product. Salesmen present life insurance as a solution to provide money in the future to their loved ones in case the customer died due to unfortunate circumstances. An experiment called the REM project has been conducted and studies show that there is a higher chance for people to buy life insurance if they have a relationship with a salesman. Relationship marketing is an effective tactic, but it is dangerous to our society.
There are two ways to buy life insurance. The first way is the endowment policy where most of your insurance money goes in a saving plan where you collect it at maturity. The second way is to buy term insurance where all of your money goes into buying protections in the event of your death. During term insurance, there is no cash value once the policy expires. If you died, your significant other will receive a stated amount of cash. If you try to take cash from an endowment policy, you need to pay interest or give up your policy in exchange for cash. Unlike endowment policy, term insurance provides the buyers the ability to withdraw cash from the policy without any penalty. Buying term insurance is typically better than endowment policy. Sadly, most people brought endowment policy because salesmen recommend endowment policy. Most people have no. knowledge about life insurance which allows the industry to charge high prices for life insurance.
In my opinion, I feel life insurance is not a good option because insurance feels like a scam to me. What I mean is that insurance companies make a lot of profit because it is low risk but high reward. People buy life insurance to leave something for your loved one if they ever died. The chances of a person dying before 65 are extremely low and I am willing to bet on myself that I will live longer than 65 years. While this is my opinion, I understand some people just want to leave something for their loved ones if they died young. Life insurance companies take advantage of the fact that nobody knows life insurance. By employing relationship marketing, I believe the salesmen will gain the customers’ trust by creating a relationship. Then, customers will follow the salesman’s advice, not knowing the salesman’s goal is to sell the most expensive life insurance option. Life insurance is a controversial topic but the one tip I recommend is to not buy high-cost insurance and do your own research.
Crosby, L., & Stephens, N. (1987). Effects of Relationship Marketing on Satisfaction, Retention, and Prices in the Life Insurance Industry. Journal of Marketing Research, 24(4), 404-411. doi:10.2307/3151388
https://faculty.mu.edu.sa/public/uploads/1360924661.2285relationship%20mark16.pdf
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