Understanding 'Living Benefit Life Insurance': Navigating the Profit-Driven Market
In the marketplace, companies often introduce new products or variations of existing ones to maximize profits. This is particularly evident in industries like fast food, where offering different types of burgers can ensure customers perceive added value and thus justify higher prices. Similarly, in the financial sector, life insurance companies continuously introduce new products, such as 'living benefit life insurance,' to enhance their profitability. Let's delve into the essence of this type of insurance and uncover the underlying profit motives.
Profit Margins in the Marketplace
The fundamental rationale behind introducing new products is to increase profit margins. For instance, consider a fast-food chain that introduces a Swiss Burger, an Angus Burger, or a Pizza Burger. Despite being variations of the main product, these alternatives command higher prices due to the perceived added value or novelty. The profit margins on these specialty items are typically higher compared to the standard burger. This is a universally applicable principle across various industries.
Similarly, within the realm of home appliances, the premium 'deluxe vacuum' models sit atop the market due to their high-profit margins. Even in the mundane world of office supplies, a standard BIC pen can be found at a lower cost than its premium counterpart, the BIC Velocity. The main factor driving higher prices is the higher profit margins enjoyed by these companies.
Profit Dynamics in Life Insurance
When it comes to life insurance, the profit motive is equally pronounced. Many advanced life insurance products beyond the basic term life insurance are introduced because of their higher profit margins. These products often come with marginally better benefits at significantly higher costs. To illustrate, a 'living benefit life insurance' package might offer more comprehensive coverage, such as providing a portion of the insurance proceeds while the policyholder is alive, but at a higher premium. The insurance companies benefit from this higher profit margin, which often translates to higher commissions for the sales representatives.
Debunking the Myth of Enhanced Benefits
It's important for consumers to recognize that many of these advanced products are designed primarily to boost profit margins rather than provide substantial additional benefits. The life insurance salesman is often incentivized to push these higher-profit products, as they can earn higher commissions. Additionally, the companies leverage marketing strategies to make these products seem essential, even though many of them are overpriced for minimal value.
While there may be instances where a specialized life insurance product is indeed necessary, the general advice is to focus on the basic life insurance product. Most of the advanced products serve to pocket more money for the insurance company without offering commensurate value to the consumer.
Consumers should remain vigilant and critically evaluate any life insurance product before making a decision. Understanding the underlying profit motives can help make informed choices and avoid overpaying for products that don't provide the expected benefits.