LIFE INSURANCE: STILL AN IMPORTANT VALUE
While employee benefit needs change, life insurance remains crucial for financial portfolios
By Len Strazewski
The U. S. economy continues to grow, and employers are struggling to recruit and retain the best employees. But workers are a lot different than they used to be and the employee benefits that attract them are evolving rapidly.
Riddled with huge amounts of debt from student loans, higher-than-ever housing costs and the proliferation of short-term contract jobs, employees have new and greater employee benefit needs and are more interested than ever in benefit choice. However, life insurance, one of the oldest benefits, continues to serve an important need by providing financial security to workers facing serious illnesses or death, says life insurance industry experts.
“Because life insurance as an employee benefit has been around for a very long time, there is a perception that it may not be as valuable as other employer-paid or supplemental benefits,” says Wendy Herndon, second vice president of product launch and adoption at Aflac in Columbus, Georgia.
But the perception is not consistent with industry research. Herndon noted that, according to the 2019 Insurance Barometer Study by LIMRA, about 43%of Americans don’t have life insurance and more than 50% feel they need more.Top reasons for getting life insurance include paying off a mortgage in case of death (27% in 2019—up five percentage points from 2017), helping with college funds in case of death (14%—up three points from 2017) and replacing a policy (19% in 2019—up eight percentage points from 2017).
“Life insurance is a crucial benefit in anyone’s financial portfolio,” Herndon says. “And one of the most asked-for benefits.” And for good reason, she notes. “Think about the high cost of student loans and the expenses of young families. Many employees now see the need for more life insurance and the financial protection it provides.”
John Thornton, executive vice president, sales and marketing at Amalgamated Life Insurance Company in White Plains, New York, agrees that even though term life insurance is a long-standing employee benefit, it continues to provide important value to employees as a financial protection and to employers as a way to recruit and retain employees.
“Life insurance is appealing across generations and a cornerstone product in an individual’s financial security. Not only does it contribute to an individual’s financial wellness, it helps employers attract and retain employees,” he says. “Given when a life insurance policy’s benefit will be activated—upon the death of the insured—the peace of mind gained by an employee in knowing their family will be protected is important in employee morale and productivity.”
Term life insurance, usually offered by employers as a multiple of salary, is the most basic and traditional form of life insurance and remains one of the most common and important benefits, according to recent research from Eastbridge Consulting Group Inc. in Avon, Connecticut. The latest reports from the consulting company, which specializes in the voluntary benefits market, identify term life as one of the top five most frequently sold products in 2018 by employee benefit agents and brokers.
While many employees receive term life insurance as part of an employer-paid package of benefits, many employees are willing to pay extra for additional levels of insurance. About 14% of employees surveyed by Eastbridge own term insurance on a 100% employee-paid basis.
Term life also is one of the top five products employees said they would be most willing to pay for on a 100% employee-paid basis, the report says, and term life was the top selling product line in 2018 and once again accounted for the largest percentage (20%) of 2018 voluntary sales.
Overall, life insurance sales were flat year-over-year, totaling $2.3 billion, but continued to account for the largest percentage of sales—27% of all voluntary sales. Term life sales were down 3% compared to 2017, totaling just over $1.7 billion.
Life insurance benefit products continue to evolve, and many employers also offer whole life insurance, which accumulates a cash value separately or in combination with term life insurance. Insurers report renewed interest in whole life insurance, particularly among younger employees who realize that they can buy the coverage on a guaranteed issue basis at a lower rate early in their careers.
For example, in November, Aflac announced a new addition to the company’s portfolio of group worksite life insurance, available as either whole life or term life insurance. The new product features advanced claim payment to help with immediate final expenses such as funeral costs. The insurer may advance a portion of the policy’s proceeds upon notification from the beneficiary before receiving all necessary documentation.
The new product also adds a first-responder rider that pays an additional benefit if death occurs in the line of duty and that can provide fixed, lump-sum or periodic payments for a qualifying chronic condition while the policyholder is living.
Herndon says sales of whole life insurance supplemental benefits are on the rise as employees try to add to their protection and build a bigger financial nest egg in cash value, and employees also appreciate new benefit combinations such as whole life insurance and critical illness insurance that provide cash benefits.
Aflac and Amalgamated both combine term and whole life insurance with other voluntary benefits in a portfolio of employer offerings that can include critical illness insurance, accident insurance and hospital indemnity insurance. “Life insurance and other supplemental products are fast evolving together into a living benefit that provides a level of benefits to policyholders while they are alive, under certain conditions,” Herndon says.
Thornton agrees, noting that whole life insurance and other variations, such as universal life insurance, appeal to employees who are seeking an accumulated cash value and want to purchase higher levels of benefits with guaranteed issue underwriting.
“We are seeing more combination products that address multiple needs and changing terms directly related to our current economic environment of sustained low interest rates and longer life spans,” he explains. “Toward meeting profitability goals, some insurers are limiting the conversion periods for individual term policies to be fully converted to a permanent policy, reducing the maximum age for conversion, and reducing the face amount at the end of the policy’s term period.”
Amalgamated Life Insurance Company, for example, offers products with add-on options, including a group term life insurance product with optional add-ons for accidental death and dismemberment. In March, the company introduced a voluntary portable group level term life insurance product with an accelerated death benefit rider at no extra premium cost, and an accidental death and dismemberment benefit rider which provides optional coverage for accidental death or dismemberment.
The 2019 Insurance Barometer Study by LIMRA found that 72% of Americans liked to buy combination products vs. traditional products, Thornton notes.
Thornton recommends that agents and brokers assist employers in analyzing their workforces and designing a portfolio of benefits that meet very specific employee needs. “Structuring the life insurance benefit should take into account an organization’s workforce demographics, including levels of workers such as key employees vs. rank and file employees, as well as the generations reflected,” he says.
“An employer must consider whether the life insurance benefit will be offered as part of a group insurance benefit or a voluntary benefit. Depending on whether it will be a group policy or voluntary policy, and/or if an organization wants to provide the insurance only to a select group of employees, it’s important that companies consult with their corporate counsel to be sure they are in compliance with nondiscrimination regulations.”
For example, employers who opt to provide group term life insurance must be certain that their plan does not discriminate regarding employee eligibility by meeting criteria such as the plan benefiting at least 70% of their total employees and that 85% of those employees participating are not key employees, he says.
Thornton notes that many employers are now starting to structure their life insurance benefits to also include their nontraditional “gig” workers, who generally find it challenging to get benefits. Gig, or seasonal and contract employees, are generally not offered employee benefits, but recent economic trends, starting with the recession of more than 10 years ago, have made them popular with employers.
As the economy rebounded, employers have found hiring good contract employees to be a bigger recruitment challenge. Gig workers hired for specific jobs that require unique skills are particularly challenging to recruit and retain.
A recent LIMRA study found that employers are more inclined to offer benefits to their part-time gig workers as opposed to contract (1099) workers or even seasonal workers, Thornton says.
“This is a personal choice of the employer and depends on the level of workers and how important those workers are to the company. Some employers opt to attract and retain part-time or flex-schedule workers by offering them the opportunity to participate in their group plans, in addition to making them aware of the voluntary benefits and enrollment periods so they too can take advantage of them. There is really no right or wrong; it’s a personal choice of the plan sponsor,” he says.
For more information:
Amalgamated Life Insurance Company
Eastbridge Consulting Group
Len Strazewski is a Chicago-based writer, editor and educator specializing in marketing, management and technology topics. In addition to contributing to Rough Notes, he has written on insurance for Business Insurance, Risk & Insurance, the Chicago Tribune and Human Resource Executive, among other publications.