Torchmark provides protection-oriented life and supplemental health insurance to middle-income Americans through its premier niche distribution organizations. We succeed in this market while many life insurers have moved up-scale seeking the smaller high-income market focused on asset accumulation. To understand our successful strategy and how we have used it to build a profitable, predictable, stable, cashgenerating company, is to understand our market and products, as well as our expertise and discipline necessary to execute our strategy.
The life insurance we write is designed to provide a basic financial benefit in the event of the death of the insured person, which is the foundation of all life insurance programs. For many of the customers we serve, it may well be the first and only life insurance they own. The policies are other simple, individual whole life policies which will over time build modest cash surrender amounts, or simple term policies. In 2002, the face amount of our average agent-sold life insurance policy was $32 thousand and $12 thousand for our average direct-response sold life policy.
Very few of our life insurance products contain additional savings, or asset accumulation features that are dependent on outside financial market growth for their financial success. As a result, the reserves that we are required to put aside for paying future life insurance benefits are very stable and not subject to swings in financial markets. These features of protection life insurance not only insulate the customer from swings in the market value of their insurance purchase, but also result in very predictable profits for us with little influence from outside financial market swings for which we have no control.
The health insurance that we market is individual supplemental health insurance. The term “supplemental” means that the insured person has a primary health insurance program that pays most of the insured’s expenses, such as the federal Medicare program for individuals age 65 and over. Medicare supplement policies, for which Torchmark’s United American Insurance Company is best known, are designed to coordinate with traditional, fee-forservice Medicare by paying the deductibles and coinsurance required under Medicare.
We also sell other types of limited-benefit supplemental policies that are popular with those who choose to self fund much of their day-to-day routine health care. They can reduce the risks of self funding by buying a limitedbenefit supplemental policy that helps pay for hospitalization and surgical costs only. We also sell supplemental policies that pay benefits only when the insured person contracts a dread disease such as cancer. Almost all of our health insurance policies are underwritten before issue for health risks on an individual basis. Torchmark does not sell any comprehensive, major medical health insurance.