Why employees don’t opt for life insurance benefits

Consumers report they fear the high cost of a comfortable retirement, yet more than 100 million Americans have no life insurance protection.

A recent insurance trends study from LIMRA reveals that Americans’ most common financial concern is the ability to afford a comfortable retirement, and yet nearly 40% of Americans do not have life insurance coverage.

There is no doubt in the importance of life insurance, and America knows it, considering the fact that half of the households would feel the financial impact from the loss of their primary wage earner in a year or less. Even so, the majority state they would not purchase a life insurance policy in the next 12 months.

Financial priortiy chart

Why? Perceived cost of annuities and life insurance policies is the primary factor preventing people from purchasing some or more life insurance, followed closely by the need to fund other competing financial priorities, such as mortgages, cell phone bills and tuition.

For instance, 80% of consumers overestimated the cost of a simple 20-year term life insurance policy by nearly two times. This may be in part because consumers are unaware of the various factors that affect the cost of life insurance. Most understand their age and health factor in, but few are aware that gender, occupation and even driving and credit history affect one’s cost to purchase a life insurance policy.

Even more concerning is the fact that more than a third report they do not trust life insurance agents and find the information they provide confusing, which is a huge deterrent effecting people’s openness to learning about various life insurance options and knowledge to select the policy that is right for them and their situation.

Opportunity to educate
This leaves a great opportunity for advisers, employers and carriers to educate about the importance of obtaining life insurance coverage — and the sooner the better because the cost can increase as one ages. What’s more, some types, such as cash value life insurance, continue to grow as long as the buyer continues to fund it; therefore, the longer one owns it, the greater the investment becomes.

Along with supplementing retirement funds, life insurance alleviates the worry that one’s family members will be left with a financial burden due to outstanding debts or funeral costs should the policyholder die. The thought of one’s death is grim, but it is a reality that people can better prepare for by obtaining some type of life product or long-term care insurance.

The big take away from this study is that people are concerned about their future retirement income, acknowledge their need for some or more financial protection, and are alarmingly unaware of the affordability of long-term financial coverage like life insurance.

Advisers and employers play a big role in educating employees about the different types of life insurance policies and have a responsibility to assist each employee on understanding their ability to afford different amounts of voluntary life insurance coverage. Most often this falls into the hands of the HR professional. In small companies with only 10-20 employees, HR staff have the ability (and time) to discuss employees’ benefits options one-on-one, but in companies with a large employee-population this is a challenging, if not impossible, task.

Herein lies the problem. While employers do offer various ancillary benefits and voluntary life insurance coverage, employees are simply unaware of their affordability and do not even think twice about opting to “waive” the option to purchase additional life insurance coverage during chief opportunities, such as open enrollment or qualifying life events.

Evolving technologies
There is a happy ending; however, because in recent years evolving technologies have been shaking up the benefits, insurance and administration industries and streamlining most of employee benefits enrollment, education, communication and administration processes. While businesses are all for acquiring technologies that help to automate their business operations, even traditional agents, brokers, and large insurance carriers are including benefits administration platforms with their other product offerings.

High-performance, robust, customizable employee benefits enrollment and administration platforms enable employers to not only offer a wide array of voluntary life insurance products, but more importantly, communicate to employees their rights and the critical benefit information they require in order to make financially practical decisions for their future retirement and savings plans.

Enrollment sites that provide tailor-made experiences will cut down on some of the reasons for rejecting life insurance in the first place, such as the common belief that it is too expensive. For example, when employees log into the online platform at Web Benefits Design only the specific benefits they qualify for will be available for them to enroll in, create a unique experience for each employee.


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