Life by Spot: Can Short-Term Life Insurance Succeed in the Long Run?

by on Jan 02, 2019

Do people who jump out of airplanes for fun also buy life insurance?

A new insurance company is going to find out. Life by Spot, a Texas-based startup, plans to offer short-term life insurance to skydivers, lawnmower racers and other thrill-seekers starting in 2019. Traditional insurers have long been reluctant to insure skydivers, who statistically are far more likely to die in skydiving accidents than non-skydivers. But where traditional insurers see risk, Life by Spot sees an opportunity to attract Millennials with short-term life insurance.

The firm believes it has identified a gap in the life insurance market. Skydivers hoping to insure their lives have few options, none of them great and all of them complex. They could buy travel insurance with an extreme sports rider, but this option provides significantly less coverage than a life insurance policy. They could buy two separate policies—the first with a skydiving exclusion and a second, smaller policy to provide partial coverage in case the parachute doesn’t deploy. They could also lie to their life insurance company about skydiving, although this would backfire in the case of a skydiving accident.

Enter short-term life insurance from Life by Spot. Corporate Insight recently attended the startup’s presentation at the LIMRA Conference, where it detailed its plans to attract Millennial adrenaline junkies. Life by Spot asked an ad agency, “If Red Bull and GoPro were to create a life insurance company, what would that look like?” The firm sees short-term life insurance as an opportunity to upsell traditional life insurance and plans to attract customers via social media. It also intends to form partnerships—à la travel insurance—to provide the option to purchase life insurance at checkout for riskier activities. On its homepage, Life by Spot pitches itself as Uber for life insurance, as is the trend.

 

Life by Spot Homepage Excerpt

 

Regardless of whether that’s a valid analogy, Life by Spot believes it has found an opportunity to attract the coveted Millennial demographic. However, we do have some questions. Does this market gap exist because of a limited supply of short-term life insurance or because of a limited demand for it? People buy life insurance for many reasons, but an important reason is risk aversion. Logic suggests that skydivers are less averse to risk than the general population—parachutes notwithstanding. Does that make them less likely to purchase life insurance? And will a “simple platform” offering on-the-spot coverage and instant approval be enough to overcome the long-term decline in life insurance ownership rates?

On the other hand, the possibility of death increases the demand for life insurance, and lawnmower racing certainly seems to increase the (admittedly low) potential for a lawnmower-related death. There may be an overlap in other sports. Higher income and education correlate with both life insurance ownership and scuba diving. Extreme sports participants seem to have both the need for short-term life insurance and the means to purchase it. They may represent an underserved market.

We are interested to see how Life by Spot fares. Previously, the complexity of the underwriting process made short-term life insurance impractical, and traditional life insurance policies remain prohibitively expensive or complex for skydivers and their ilk. Life by Spot plans to provide a creative solution. We’ll see in 2019 whether thrill-seekers are willing to make the leap.