Benefits Products & Services

Offering something permanent

American United Life taps into a need for a time-tested product

By Thomas A. McCoy, CLU

No matter what changes may come to employee benefits menus in the years ahead, life insurance will remain a cornerstone benefits product. The mix of life coverages offered, and consequent sales opportunities, however, could be broadened.

Term life has always been a dominant product in benefits plans, whether the employer or the employee is paying the premium. Term will continue to make sense for any work force because it can provide high limits of coverage at a low cost. Permanent life insurance (with cash values), which is far more expensive and complicated, has been thought to be better suited to sales outside the employer market. But is it really?

According to LIMRA (Life Insurance Marketing Research Association), U.S. adults owning individual permanent life insurance has fallen from 59% in 1960 to 35% today. Most workers obviously are relying heavily on their employer as the source for their life coverage.

Brian Lauber, chief marketing officer and vice president of employee benefits of American United Life Insurance Company, (AUL), a OneAmerica Company, says the lack of permanent life ownership shows that needs are not being met.

"Life companies market to upper middle income and upper income people, which is a very small portion of the population," says Lauber. "For other people, no one is giving them any guidance on how much life insurance they should have or what type of product they should be buying. Yet, they say they know they need it."

The employee benefits market's role in permanent life sales is small compared to term, but it is growing. Lauber says industry-wide permanent life sold in the workplace in 2010 amounted to about $450 million of the $2.8 billion total life insurance sold as employee benefits. That represents a gain from the $390 million of permanent life insurance sold in plans in 2007.

"We think there's a tremendous untapped opportunity in this market," says Lauber. AUL plans to introduce a permanent life product to its benefits menu in 2012.

The challenge for AUL and other companies that offer permanent life coverage in their benefits plans will be to change the mindset of employees who are used to choosing their benefits by a quick "one-off" checking of boxes to a more thoughtful, cohesive approach to benefits selection.

"We want to provide tools for evaluation of the employee's needs and the product solutions for those needs," says Lauber. "There's nothing new in this permanent life product, but what we think is new is putting it in the context of all the other benefits the employee is offered—both employer-paid and voluntary—and what their individual needs are.

"Too often in the past, when permanent life insurance was sold in a benefit plan, the approach was 'How much will $10 a week buy you?' Instead, we want the questions to focus on 'How much do you need? What are your other needs?' Then we can start talking about the products we can offer to help you get there."

AUL's strategy with its permanent product will allow the broker to choose their level of involvement in communicating the guidance to employees. "We don't want brokers or employers to have to create an infrastructure to deliver this product. We want it to be a turnkey solution once it is installed," Lauber says.

For instance, he notes, if the underwriting process for the product goes on too long, it will become frustrating to both the employer and employee. Since medical information is required, "We plan to streamline the process of medical tests as much as possible."

Another approach

Robert A. Kerzner, CLU, ChFC, president of LIMRA International, suggested last year that another way to provide permanent life insurance as an employee benefit might be to offer it through a 401(k) plan. According to LIMRA, it is possible to offer permanent life this way, but there are tax implications. Kerzner discussed some positive aspects of this approach in LIMRA's second-quarter, 2011 MarketFacts Quarterly—seeing it as a way to sell to some of the 65% of the population currently without individual life insurance.

Kerzner wrote, "When IRAs were first introduced there was an option to buy life insurance as part of the funding of an IRA. To do so with 401(k)s would give them the ability to buy the whole package—savings and protection—once again."

How practical it is to distribute permanent life as a 401(k) option is another matter. The purpose of a retirement plan is to produce funds for retirement income. Defined contribution (DC) plans have a wealth of investment choices to reach that end, and eventually they may have more, as annuities become used more for that purpose. Adding permanent life insurance to the retirement plan mix looks like a mismatch.

However, permanent life insurance could be a sensible addition to a regular employee benefits lineup, outside the retirement plan. American United Life and others with permanent life products in their benefits portfolio are hoping it will make sense to a growing number of plan administrators and participants. Three factors bode well for its success.

1) The increased use of voluntary benefits and various consumer-driven health care options has forced employees to think more seriously about their own individual needs.

2) Employees expect to change jobs more frequently than they once did, and the cash-value life product gives them a valuable benefit to take with them when they leave an employer.

3) The financial crisis has undermined employees' confidence in real estate, stocks and bonds.

In an era of stronger investment returns, life insurers were reluctant to bring up the word "investment" in relation to their stodgy permanent life product. However, in the wake of the financial crisis, they are more aggressively promoting the investment component of permanent life. Guardian Life, for example, is in the third year of an educational campaign titled "Life Insurance as an Asset Class."

Call me naive, but when I look at some permanent life products I purchased primarily for protection between 10 and 40 years ago and see that they are still paying at least 4% interest on the cash values, I think the product's investment element has held up pretty well.

Permanent life insurance could certainly use some additional marketing help. Maybe it will find that help in the workplace.