While the ever-rising cost of health care continues to be a top concern for employers and employees alike, there is at least one employee benefit headed in the opposite direction. "I always facetiously use the phrase 'life is cheap,' says Bob Harnett, vice president of Lutherville, Md.-based Silberstein Insurance Group. "Life insurance on an employer-paid basis has gotten to be very inexpensive."
Thanks in part to decreasing mortality rates, the drop in cost for this perennial group benefit has also led to richer plan designs and increased commoditization - which accounts for the mounting popularity of pairing a base group product with customizable voluntary supplemental life.
Building block for voluntary
As the group life market has trended toward incorporating more and more voluntary life coverage over the last decade, experts agree that the standard group benefit is most likely to be a base sum, flat across the employee population that doesn't go above the IRS threshold that requires larger sums be taxable as imputed income. "Life insurance is a staple benefit and if there's any long-term trend it's been employers moving away from providing one, two, three times salary type of benefits to more often than not ... providing a flat $50,000 benefit," says Chris Swanker, VP of worksite and specialty markets for Guardian.
Matt Purington, director of group life products at Unum, agrees. "A lot of employers have just said, 'We're just going to cap the employer-paid life insurance at $50,000 and make the rest voluntary,'" he says.
Working in the life insurance market for about six and a half years, Tom Snow, financial risk and benefits adviser at VAST in Marquette, Mich., recently had three groups incorporate an employer-paid life insurance option for the first time. "It was more minimal, not a huge benefit, but it was something to create the conversation around life insurance and then we added the voluntary to that so the employee could then purchase something additionally," says Snow, adding "it's been working well for us" to have the employer offer a flat base benefit to nearly everyone.
The power of consumerism that voluntary benefits bring to life insurance is missing in the traditional group product, Harnett points out. "Voluntary benefits can allow for greater consumerism on a life insurance product in a voluntary model because you're still using the power of the group of employees to get high guarantee issue amounts, little or no medical underwriting, lower pricing, but when you do it on a voluntary basis it can be partially or fully employee-paid under a payroll deduction model," he says. "When you do it that way the product becomes portable and it can also have lots of consumer-directed bells and whistles on it like long-term care or a cash value or it could use a whole life vehicle rather than just a straight term group-life product."
The Guardian Life Insurance Company of America offers a product as a standard rider that will build an enhanced disability benefit into a life plan. "One other trend we see is the bundling of different types of benefits into the life plan. So there are times when we work with the broker or the adviser to try to link different coverages that we have together," Swanker says.
The product, called Life Assist, builds an enhanced disability benefit into the life plan by providing disabled policy holders (those who can't perform two of the five ADL) waiver of premium without reducing the death benefit. "It pays 1% per month for 100 months," he adds, "so you could essentially double your benefit if you were severely disabled."
One of the most beneficial hybrid plans, according to Silberstein's Harnett, is the ability to either convert a life insurance policy or have a rider on it related to long-term care. "Because many people don't have other ways of paying for or even attaining a financially viable long-term care policy other than either a conversion or a rider on a life insurance policy," he says.
While Unum's Purington has heard a lot of talk about hybrid plans, he hasn't seen many on the market. Although Unum's individual life product has an LTC rider available that pays a partial benefit over time, "the problem really comes with those hybrid products, they ultimately have to get homogenized to the point where they may not meet anyone's needs with trying to define everything in the same product," says Purington. "And obviously they are a challenge from a regulatory perspective, getting approval for those types of products."
Purington cites several insurers that have attempted to add a critical illness rider to their group life plan. While some have been successful, "there are many carriers that have run into significant regulatory hurdles in combining those coverages within the same policy," he says. Coming up with a competitive pricing structure for such plans is also a challenge.
Wanza Schweiger, president of Benefit Innovations in Indianapolis, doesn't typically advocate combo plans to her clients. "I recommend if you want disability you buy disability. If you want life you buy life insurance," she says. "I'm kind of a purist in that regard."
However, Schweiger is beginning to get inquiries from clients about universal life and more permanent life insurance. It's "coming from employees while we're doing enrollment," she says. "'OK, term life is great, but what if I don't have my job next year? Can I take it with me?'"
With 2013 enrollment here before we know it, Schweiger hopes to see employers continue to make guaranteed issue on voluntary life coverage as high as possible "so every year we go back through the exercise of determining what guaranteed issue maximums are, because obviously if you sell a bunch of life insurance it makes the guaranteed issue go up for the following year," she says. "So if we can get a little extra GI at open enrollment time to make sure we can keep people paying attention to that and upping it when they have an opportunity to, the group model gives a lot of opportunity to folks who would struggle to get life insurance otherwise."
Keeping the channel open
Fortunately, decreasing mortality rates are allowing insurance companies to offer higher guaranteed issue on voluntary supplemental life, "which is one of the huge selling points for the group model of term life insurance," says Purington.
"Individual insurance can be a tremendous value, it's a very, very important part of an employee's total benefit picture," he says. "But many employees are faced with having to go through medical underwriting from the first dollar of individual life insurance, and if you have any number of medical conditions you can be disqualified from coverage. Whereas group life insurance provides an opportunity to get cost-effective coverage with no medical questions, so it's increased in popularity among employers."
Although voluntary life continues to grow in popularity, Harnett cautions that brokers and advisers shouldn't take that to mean group life is less important.
"Because a lot of times, the people you're dealing with, the only vehicle they have for getting affordable life insurance or even access to the life insurance market is through their employer," he says. ". . . The life insurance agent peddling policies across the kitchen table, he's dead as far as I know."
It's the way the insurance distribution model has gone for at least the last 10 to 15 years, says Leonel Benoist, VP of sales, group insurance division of Mutual of Omaha. "Really most employees get their financial insurance advice at the workplace,'" he confirms.
Focusing on the education aspect in the sales process pays off in enrollment numbers as well. "What we've found is that when we take the mindset of educating these people and helping them make a decision for themselves personally the enrollments we see on the backend are much greater and have been fairly successful for us," says VAST's Snow. "The last two enrollments we did we had about 66% participation out of a group of about 80 people - industry standards the participation levels are usually a lot lower than that."
Benefit Innovations' Schweiger has been in the industry for about 26 years. Often when talking with a customer for the first time she'll find that they only offer life insurance because the group health insurance company requires they carry a minimum level of it. "It's not unusual to find you have 200 employees and only 150 that take the medical plan have life insurance, and they only have life insurance because [the carrier] requires it," says Schweiger.
She finds it her "duty to educate the employers on how easily they can provide at least a basic level of life insurance for all of their employees," she says.
It's a strategy that works. This past enrollment season Schweiger says, "I didn't have a single employer tell me that he or she did not want to provide that basic level" of life insurance.
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