Economic Behavior...
Framing The Life Insurance Sale

Jack Marrion
July 2013 Issue

A while back I talked about the general concept of framing. All of the data we receive is filtered by our own internal decision-making biases; the way the data is framed as it enters the fog of these biases affects our decisions. Framing isn’t good or bad, it just is. However, if the framing takes into account our internal biases when presenting data, it can result in consumers making better decisions.

Narrow Framing Works Against Life Insurance

More than 30 years ago researchers Amos Tversky and Daniel Kahneman asked a group of people to make a pair of decisions. In row one the people were to choose between (A) a sure gain of $240 or (B) a 25 percent chance to gain $1,000 and a 75 percent chance to gain nothing. In row two they were to choose between (C) a sure loss of $750 or (D) a 75 percent chance to lose $1,000 and a 25 percent chance to lose nothing. Two simultaneous decisions; what did they choose?

On the surface that might seem odd. After all, if you’re willing to accept the possibility of a larger loss, why wouldn’t you also “roll the dice” for the chance at a larger gain? However, the majority of us don’t look at this as a pairing of decisions, but as two separate decisions.

The first decision relates to gains, and most of us tend to be risk-averse when we have a profit. An example is that people often sell their winning stocks because “you’ll never go broke taking a profit.”

The second decision relates to loss, and we tend to be risk-seeking when we have a loss. Not only do we hold on to our dodgy stocks, but we might even “dollar-cost-average” and buy more shares.

Buying life insurance works against our normal instincts. Say you could buy a life insurance policy with a $240 premium and a $10,000 death benefit. The pair of decisions now in row one are choose between (A) a sure gain of $240 (money we save if we don’t buy the life insurance) or (B) a perceived 1 percent chance to get $10,000 and a 99 percent chance to gain nothing.

In row two choose between (C) a loss of $240 spent on the premium if you don’t die or (D) a 1 percent chance to lose $10,000 and a 99 percent chance to lose nothing. Our head is telling us to not spend the $240 premium (A) because (D) there’s a 99 percent chance the bad thing won’t happen. However, an insurance purchase requires us to choose (B) and (C).

This is a huge point. The life insurance frame is contrary to the way most people think because it requires them to seek out risk and pay an expense when everything seems like it is going well and they don’t feel the risk.

This narrow framing goes far in explaining why life insurance is a hard sell—because it is 180 degrees from the way seven out of eight of us would typically decide.

How do you fix this problem? You need to change the framing.

Change The Odds Framing

People who are told that they have a terminal illness often become motivated life insurance buyers. A $240 premium on a $10,000 death benefit seems cheap if there’s a 99 percent chance of dying; yet not so cheap when there’s a 99 percent chance of living.

This frame can be changed if the perception of the likelihood of death is changed even if the real odds haven’t. A person’s perceived likelihood of dying increases if his best friend dies from a heart attack. Although I once had a colleague who handed out business cards at funerals, another way to alter the perception of death occurring might be to share obituary notices of people dying at the same age as the prospect. Telling prospects stories of similar people dropping dead can help to reset the frame.

A better way, which will cause fewer compliance issues, is to change the cost framing: Would your family rather have 50 cups of coffee or $10,000?

Change The Cost Framing

Most will agree that $240 is a meaningful sum of money, and most can think of several things to do with that amount of money—but unfortunately (for us) paying for life insurance isn’t high on their list. However, $240 is roughly the cost of buying a large cafe latte each week at a local coffee house. Instead of talking about spending $240, ask your prospect whether he would rather leave his dependents 50 cups of coffee or $10,000, because the cost is the same for both.

There’s a reason you still hear ads saying that for “pennies a day” you can have this or that—it works. Breaking a cost into smaller pieces makes the overall cost seem smaller. A possible $10,000 payoff on $240 isn’t bad, but a $10,000 payoff on $20 (the monthly cost) sounds even better.

The Underwriting Coupon

A significant number of consumers who don’t own individual life insurance policies say one of the reasons is that the buying process is too difficult. For buyers accustomed to instantaneous transactions on the internet, the life insurance process may seem tedious.

A way to deal with this concern is to frame this extra hassle as a method to get a discount from full price: “Yes, I can offer you life insurance that doesn’t require a physical or phone interview, but it costs $800 a year. However, if you agree to volunteer some personal information, I might be able to get you a sizeable discount off that regular price.”

Your prospects probably have club cards or memberships with a number of retailers, all of whom promise to give them a better deal if they agree to share personal information or buying habits. Basically, what you’re doing is presenting the extra hassle as a way to get the “coupon” that reduces the retail price. Not paying full price by redeeming the “underwriting coupon” makes them feel like smart shoppers.

Present the hassle of underwriting as receiving a smart shopper discount for sharing personal information.

The old solution is to find guaranteed issue policies where underwriting can be avoided altogether or find very lenient insurers, but this often results in overpaying for insurance or the customer getting less coverage than needed. However, if you frame the underwriting process as something smart shoppers do, explain what underwriters look for, what is and is not a deal breaker, and how putting up with the hassle may allow the buyer to save money, you will get more people to submit an application.

Framing won’t help you close every sale, but these concepts will help you close more sales by enabling you to deal with the mental biases that often distort the decision-making process. I’ll talk more about life insurance and framing down the road.

Author's Bio
Jack Marrion
provides research and consulting services to insurance companies and financial firms in a variety of annuity areas. He also serves as director of research for the National Association for Fixed Annuities and as a research fellow for Webster University. In 1994 he wrote a book to help banks market investment and insurance solutions to their small business clients. In 1996 he produced the first independent hypothetical return monthly publication comparing all index annuities on the market, and in 1997 created the first comprehensive report of index annuity sales, products and trends, "Advantage Index Product Sales & Market Report" (quarterly). His insights on the annuity and retirement income world have appeared in hundreds of publications. In 2006 the National Association of Insurance Commissioners asked him to address their annual meeting and teach regulators the realities of index annuities. He was invited back in 2009 to talk to the NAIC about the effects of aging on senior decision-making. He is a frequent speaker at industry functions. Prior to forming Advantage Compendium, Marrion was president and owner of an NASD broker/dealer with offices in nine states. Previous to that he was vice president of a life insurance company and vice president of an NYSE investment banking firm. He has a BBA from the University of Iowa, an MBA from the University of Missouri, and a doctorate from Webster University. Marrion can be reached at Advantage Compendium, Telephone: 314-255-6531. Email: