Going up: insurers are reaching middle-income Americans with new term life products that have sent sales soaring.

Laddering is a popular concept in the purchase of bonds or certificates of deposit to mitigate interest-rate risk and provide steady income. Using this technique, investors build equal amounts of short-, medium- and long-term bonds and CDs into their portfolios.

Now life insurer Axa Equitable is touting the idea for the purchase of term life insurance policies. Laddering is not the foremost strategy in the company's efforts to sell term insurance, but Axa did have the concept in mind when it introduced a new series of term life products in January 2007.

Axa Equitable's laddering concept is but one strategy that insurers employed industrywide last year to sell term life insurance. Such sales were up nicely through the first three quarters of 2007--about 7%, according to Limra International--and a few companies achieved significant sales growth. Term life insurance costs less than other life products, is easy to understand and is a product middle-class Americans can afford.

Increasingly, major insurers view term life as a way to grow their business and to establish relationships with new customers. Some 20% of Americans have neither group nor individual life insurance, so the market is still "very unsaturated," said Mark Hug, chief marketing officer for the individual life business at Prudential Financial.

Prudential, Axa Equitable and ING all recorded big term life sales improvements last year. For the period January through October 2007 versus 2006, Axa recorded a 70% increase in average annual premiums due to higher face amounts and a higher average age of new insureds. It had a 9% rise in the number of cases and a 25% jump in face amounts. As for the laddering concept, about 10% of insureds bought more than one policy at the time of purchase in 2007-7% more than in 2006.

In term-life laddering, an insured buys separate policies to match specific risks of different durations. For example, a parent might buy a 10-year, level-premium policy to ensure money is available for the children's college costs; a 20-year policy to pay off what remains on the mortgage; and a 30-year policy for income replacement for the spouse. Those three policies cost far less than a single 30-year policy covering all of the risks.

Of course, the producer selling the term life policies collects a smaller commission, but Robert Auer, vice president of life product marketing at Axa Equitable, said looking out for the best interest of a client helps position the agent as a trusted adviser, which could result in future sales and referrals. "Good agents all think like that," he said.

Axa's new term series boosts the laddering strategy in several ways. There's a new 15-year level-premium product to better accommodate a variety of life events. Axa also introduced long conversion periods during the policy term without insureds having to furnish additional evidence of their insurability.

For example, the policyholder could convert the 10-year policy during the first eight years; the 20-year policy during the first 15 years; and the 30-year policy during the first 20 years (but in no case beyond the policy anniversary nearest the insured's 70th birthday).

Auer said that industrywide, about 8% to 10% of term insurance policyholders convert to permanent coverage. Laddering is particularly applicable for baby boomers, Auer said.

The younger set--30-year-olds, for example--might be better off buying a universal life policy rather than a 30-year term policy. And people who are now in their 60s and 70s might need permanent insurance for estate planning or some other long-term lifetime need, he said. Term insurance might not even be available to them, he said.

Axa Equitable tries to reprice its term portfolio frequently enough--usually every 12 to 18 months--to remain in the top quartile of term competitors, Auer said. Over the past 20 years, variable life has been the biggest part of the company's overall life business, and term would have been a "very minor" product 20 years ago.

But term sales lately have been great, he said.

"The amount of premium is a lot less than we get for our universal life and variable life sales because of the nature of product" Auer said. "But the number of cases has gone up and continues to go up. It isn't necessarily being driven by the laddering concept, but certainly the concept doesn't hurt. We're trying to position ourselves as the at-retirement company, within 10 years of retirement, before and after, and this really does fit that marketplace very well."

The Rock Goes Online

Likewise, Prudential said that for the first nine months of 2007, it recorded term life sales of $157 million, a 57% increase compared to the same period in 2006, when term sales were $100 million.

Hug credited Prudential's newest distribution outlet, direct-response general agencies, as a major reason for the company's surging sales. DRGAs are independent dot-com organizations--think SelectQuote, IntelliQuote, AccuQuote and Insure.com--that pull in leads through the Internet and close sales over the phone.

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"Because these are going direct to the consumer, sales are growing substantially" Hug said. "If you have a very competitive term product and a strong brand, all of a sudden you see your sales growing with those organizations. We've had a lot of success with that new distribution source within the last couple of years."

Hug said Prudential has been trying to augment its sales, which mostly occur in the affluent sector of the mass market, by moving "down market" and that the DRGAs have helped.

The company's most recent term life price adjustment was in January 2007, but it was only a minor change, and Hug said the sales improvement is "less of a price play and more of a distribution play." The company is "much stronger in our distribution sources than we were a year ago," he said.

Major Overhaul at ING

While Prudential led the way in premium growth among the top 10 sellers of term life, the ING group of companies reported a 232% increase in term sales for the first half of 2007 compared to the same period in 2006.

Dan Mulheran, president of ING Life Distribution, attributed the tremendous improvement to lower rates, new products including return-of-premium term, expanded distribution and a streamlining of the underwriting process. ING only sold about 17,000 term policies in 2005, but is on track to write about 150,000 policies in 2008, he said. The group also writes universal life and variable universal life.

Building term sales is the first part of a strategy to find new customers and build scale, said Mulheran. ING sells through independent distributors; the hope is if they and their customers have good experiences with ING through term sales, they will also write UL or variable UL when the time is right, he said.

Term products have much lower profit margins than permanent insurance, he said. Nonetheless, ING captured the attention of term life distributors in 2005 when it priced its products inside the top quartile. It affirmed its commitment to compete in the marketplace by repricing again about 10 months later. ING then lowered prices for a third time in November 2007.

Mulheran said ING allows insureds to convert their term life policies to any of its permanent products with no required underwriting and without restriction except for age. The feature is a big marketing advantage, he said.

ING buttressed its sales expansion by re-engineering its underwriting process to make it faster. The company had found that 60% to 70% of all applications were for face amounts of $1 million or less, and that applicants were no older than 60.

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"So we built a new, separate and segmented process for underwriting new business that was designed to move the business in and out very quickly, but which did not shortcut the underwriting process," said Mulheran. "We call it Orange Express."

Under this new process, applications for $1 million or less or for term insurance applicants age 60 and under are segmented to Orange Express and taken over by a case manager rather than an underwriter.

"That case manager's sole focus is to build the file as quickly as possible, get every requirement out and make it an in-good-order file," said Mulheran. Only when the file is ready to go does the case manager send it electronically to an underwriter, who can approve it on a "once and done" basis, he said. The Orange Express cycle time is 22 days, but can take as little as nine days if the paramedic exam is completed right away, he said.

ING also enhanced its term life sales by introducing a return-of-premium product, which Mulheran said appeals to buyers interested in something between regular term life and universal life. The product "is able to draw us down-market" to middle-income customers, he said.

Like Prudential, ING improved term sales by expanding in 2006 into direct-response general agencies. But term sales are also growing in its other distribution channels.

One is the independent general agent, which sells many carriers' products and markets full service to independent producers. Another is a direct-to-producer channel called Life Design, in which company employees wholesale directly to high-productivity producers who feel they deserve the right to work directly with one to five or more companies.

ING also uses a so-called "near career" channel, consisting of both independent producers and intermediaries that want to belong to an organization. Mulheran said near-career personnel are registered with ING Financial Partners, which is made up of ING broker-dealers specifically for the near-career channel. Some 70% to 80% of their sales are typically with ING, he said.

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What Is Term Life?

Term life insurance provides protection for a specific period of time. It pays a benefit only if the insured's death occurs during the coverage period.

* The Trend: Term life is emerging as the product major insurers can use to reach middle-income Americans.

* Behind the Trend: Speedier underwriting and direct marketing partnerships are solving the cost-efficiency problems for this market segment.

* The Payoff: Today's middle-income customers are likely tomorrow's wealthier clients; reaching them now is an investment in the future.

A Textbook Example of Handling Risk

The idea of buying several level-premium term life policies, each to eliminate a financial risk, is a strategy not often presented to clients, but it has merit, said Edward Graves, professor of insurance at The American College in Bryn Mawr, Pa.

More often, laddering has probably occurred de facto as people acquire policies for different reasons over many years, be said.

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"This is an interesting turn of events," said Graves. "It indicates some strategizing using term policies. The industry has usually reserved strategizing maneuvers to cash-value policies, but the reality is that a lot of the marketplace can't afford them or is not willing to pay the price."

Using laddering to address specific risks with several policies can help consumers to understand what they bought, why they bought it and how long they need it, Graves said.

"One of the problems with poor persistency of policies is that people decide after the fact that they don't really understand why they need them, or they've paid more than they think they can afford," Graves said. And with today's competitive term rates, laddering can be a very affordable approach, he added.

A drawback to the strategy is that needs can and often do change. For example, a couple may buy a 30-year policy to match up against a 30-year mortgage, but 15 years later, they may buy a much bigger house with a new mortgage three times the size. Divorces and remarriages can make things even more complicated, especially if there are children from each marriage, said Graves.

So what are the alternatives to a laddering strategy? One would be a large single, long-term policy that would adequately cover all goals--but affording such a mega-policy probably would be too much for most customers. In addition, most term policies don't have the flexibility to decrease the amount of coverage as time passes, so buying one large policy can be needlessly expensive as the shorter-duration risks peel away.

One could make a strong argument for a single-premium life policy, Graves said. "That really reduces your mortality charges because you've got a lot of money working for you internal to the policy, but a beck of a lot of people couldn't afford that, even if they buy the philosophy or logic of it."

A universal life policy is another option. It offers the ability to adjust the amount of coverage and premium payments, but it would cost more than term life, Graves said.

An important part of laddering term policies is making sure they can be converted to permanent coverage. How far into the term policy the convertibility feature lasts, and trader what conditions, varies widely, Graves said.

Some companies allow policyholders to convert retroactively by catching up with premiums they would have paid for the permanent policy from day one. Owners then lock in premiums for the new permanent policy based on their current age, he said.

In any event, a convertibility feature usually adds only a small amount to the cost of a term policy, Graves said.

Learn More

Prudential Financial

A.M. Best Company # 06974

Distribution: Career agents, Allstate agents, independent agents and brokers, banks

ING Life Insurance and Annuity Co.

A.M. Best Company # 06895

Distribution: Independent agents and brokers, banks

Axa Equitable Life Insurance Co.

A.M. Best Company # 06341

Distribution: Career agents, securities firms, banks, broker-dealers, financial planners

For ratings and other financial strength information visit www.ambest.com.

How Laddering Helps

Buying shorter level-premium term
life policies to insure risks of lower
duration can be much less expensive
than buying a single, larger
term policy.

Laddering Strategy            Annual policy cost

$500,00010-year term           $470 for 10 years
$250,000 20-year term          $385 for 20 years
$250,000 30-year term          $653 for 30 years
                             Total cost per year
                            $1,508 in years 1-10
                           $1,038 in years 11-20
                             $653 in years 21-30
Single Policy Strategy       Total cost per year
$1 million 30-year           $2,375 for 30 years
level term policy

All quotes are based on a 45-year-old male, non-smoker,
preferred best for AXA Equitable's Term
SeriesSM. As of Nov. 16, 2007.

Source: Axa Equitable Life Insurance Co.

Term Life Insurance
Growth Rates 2006-2007
Percent Change

                           Third       Year
                          Quarter    to Date

Annualized premiums             6          7
Face amounts                    7          7
Number of policies              1          1

Source: Limra International's U.S. Individual Life
Insurance Sales Summary Report, Third Quarter 2007.