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Here's What Life Insurance Could Mean to Lemonade

By Matthew Frankel, CFP® and Jason Moser - Updated Feb 16, 2021 at 9:27AM

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The insurance disruptor just launched a life insurance product for the first time.

Lemonade (LMND -0.05%) has experienced tremendous success with its consumer-centric and tech-focused approach to insurance. But so far, the company has focused on homeowners, renters, and pet insurance -- all relatively small subsets of the insurance industry. In this Fool Live video clip, recorded on Feb. 8, contributor Matt Frankel, CFP, and Industry Focus host Jason Moser discuss why Lemonade's recent addition of life insurance to its product lineup is such a big deal.

Jason Moser: Let's go ahead and kick it off with Lemonade because it looks like they are going to be opening up a new product line here for their business. This is an insurance company. That is, they're really iterating and moving quickly, and they've got a new product line here that they're getting ready to launch. Talk a little bit about that.

Matt Frankel: Yeah. They're actually launching it now. If you go on Lemonade's website right now, you can apply for and buy term life insurance. It's up and running at this point, just happened. Lemonade has done a great job of bringing their AI, machine learning-driven approach to insurance. But so far, they've concentrated on relatively small areas of the insurance business. Renter's insurance is the big one. Just to put this in perspective, renter's insurance is about a $3.8 billion market in the United States. They also do pet insurance, which is a $1.7 billion industry. They do have a hand in the $100 billion homeowners insurance space, but renter's seems to be their bread and butter at this point. It's not a giant market. Life insurance in the United States alone, and remember, Lemonade is international. Life insurance alone is $730 billion market.

Moser: Wow.

Frankel: The question in a lot of investors' minds, especially mine, is, will Lemonade be able to replicate the success they've had with the renter's insurance market into term life insurance? Because it's a tougher market to underwrite. There's a reason that life insurance is such a pain to buy. [laughs] I don't know if you've bought term life insurance, Jason.

Moser: Well, I have some life insurance set up through my work.

Frankel: Well, they did you a favor.

Moser: Yeah, I've got something. But we've also, we're -- both my wife and I are working.

Frankel: Generally, the process involves a lot of paperwork, you have to meet with an agent, which is the salesperson. They're trying to sell you a more expensive product in a lot of cases, so you feel like a lot of sales pressure. You have to submit to a medical exam. When I got term life insurance, a nurse had to come to my house, and draw blood, and take my weight, and all kinds of things. It's an invasive process.

Moser: Yikes.

Frankel: It's an industry that's just begging to be disrupted, but it's going to be a tough one to crack into really.

Moser: Yeah.

Frankel: I'm curious to see because right now their application for term life is really easy, no medical exams, no nothing, and they do it all through their AI technology and just using the power of available information. For example, instead of actually doing a medical exam, they used my Social Security number to access my medical records and see what medications I'm on, things like that.

Moser: Yeah, OK.

Frankel: So if that really catches on, term life insurance is not only a big market, but it's one where the current players are not very user-friendly. So there's a lot of potential there. I'm really excited to see in the next quarter or two now that there's a Lemonade life button right on top of their website, I'm really curious to see how that plays out and how that is received by customers because that could be a game changer. Because when I got homeowners insurance, and Jason, you're probably in the same boat, when I bought my house, I had to make a call and it took about 15 minutes, and then I had a quote and paperwork came in the mail. It really wasn't that painful. Lemonade does it better, but the existing way of getting homeowners isn't terrible. Life insurance is not a fun process, so I think it's going to be really exciting. This will be a stepping stone to see if they could eventually disrupt things like auto insurance, umbrella insurance, and all these other little insurance markets that could really make them a major player. This is really their first big test, and I'm curious to see how it goes.

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