Sept. 11 Triggered a Rush to Insurers

Americans have been flooding the phones and Web sites of insurance companies since Sept. 11 in a quest for more life insurance coverage.

At some companies, inquiries and sales have been up as much as 49%, said Herb Perone, a spokesman for the American Council of Life Insurers.

“After every natural disaster there’s always a detectable spike in inquiries,” he said. “The events of Sept. 11 were a powerful and dramatic and frightening reminder to everybody of just how unexpectedly life can end.”

But some life insurance companies and agents, as happy as they might be to pick up new customers, are noticing a trend that points away from selling those added policies.

Many inquiries are coming from people who may have left bigger holes in their emergency plans than a lack of life insurance. Some don’t even need more life insurance and are just jumping on “more insurance” as the quick fix to a troubling problem.

Some, according to a spokeswoman for Principal Financial Group, are being told to put insurance on a back burner and fix other problems first.

One such client was Cella Yuenn, a young mother whose husband was killed in the terrorist attack on the World Trade Center. Her husband had a significant amount of life insurance coverage, and Yuenn herself has more than $350,000 in coverage.

But when she first started dealing with the implications that she had become the sole support of her 3-year-old daughter, she went to the agent who held her husband’s policy and asked for more insurance. He told her to slow down.

Between the policy she already had and the cash she would be receiving from her husband’s plan, she might not need any additional coverage.

Instead, she would need to take some tougher steps--such as writing a will, cleaning up the beneficiary designation on her retirement plan, setting up an emergency fund and investing the cash she was coming into--to ensure her daughter’s future.

“People will buy life insurance, that’s just a financial decision,” said the agent, Warren Rosen of Fortune Planning Group in Manhattan. “But they’ll put off writing a will because it is an emotional decision and they aren’t comfortable doing it.”

In the rush of people contacting his office after the September attacks, 70% said they didn’t have a will, Rosen said. Now he is telling his clients that he will not take care of their insurance questions until he sees that they have written a will.

It’s the hard questions about who would raise children and manage their inheritance that makes people put off these decisions.

Other steps that spouses and parents should take to ensure their families’ futures include organizing insurance policies and financial records so other family members can find them and understand what they find; making sure all retirement plans have correct beneficiary designations (they don’t go through the will); and making sure there’s an emergency fund (in cash and credit lines, if need be) to tide the family over in the hours and days before life insurance kicks in.

Of course, families still need adequate life insurance. For young parents, especially, it’s not worth skimping on insurance. These days, good term insurance policies are cheap. A healthy 35-year-old man can get $500,000 of coverage for 15 years at $225 a year, according to Quotesmith.com.

But the old guidelines about how much to buy (six times your salary or 10 times your salary, or enough to cover your mortgage and your kids’ college tuition) aren’t that helpful. To figure out how much you need, look at the expenses your family would have in your absence and the number of years they would have to cover those expenses.

A single person with no children might not need life insurance at all. Two-career couples whose children are grown might not need it either.

Some families who might not need life insurance to cover living expenses might need it to cover the distribution of a large and illiquid estate (such as a family business.)

A widowed spouse who just became the recipient of a family-supporting life insurance policy might not need more insurance, but might need an investment advisor (and not just an insurance-focused agent) who can help her or him invest the money to last a lifetime.