Life insurance has an image problem, and the industry-funded research firm Limra is intent on helping turn things around.
Lamenting a sharp falloff in households owning life coverage of any kind — to 70% currently from 83% four decades ago — Limra asks employers to do more to support their own group plans. In a recent Wall Street Journal article, the research firm said that one factor in the overall decline of the product is companies scaling back or eliminating coverage. (The main factor: economic considerations that lately have made life insurance seem a relative luxury to many individual Americans.)
For many employers who offer group coverage, “life insurance is kind of low down on their radar screens,” says Anita Potter, Limra’s vice president for group research. Their failure to tout the benefit, she suggests, was illustrated in a December 2009 survey by the firm, in which group-insured workers ranked life insurance only 11th in a list of “must” company benefits, behind medical care, pay, and other offerings. The percentage of workers who saw it as necessary was just 24%, a 12% plunge from the similar 2005 survey.
But some companies are trying to raise the profile of life insurance in their benefit arsenal. USAA — itself an insurer, specializing in military families — has been striving to add new elements to the group life options in its own workplace, for example. Employees may purchase additional coverage that can swell total coverage amounts to six times annual pay, says USAA CFO Kristi Matus. She believes that other coverage options for dependents and part-timers are keeping her company on the group life cutting edge. The life-insurance options for employees, she says, ease their mind so they can do a better job for USAA (which may, of course, involve selling insurance policies). “Knowing that your family is going to be taken care of in the event of a major loss takes some of the stress off,” says Matus.
Others in the industry doubt that there’s any real groundswell of companies doing away with group life insurance. The scaling back of corporate policies, some say, may largely reflect the recession-related rise in contract employees who don’t receive benefits. And, of course, overall Limra numbers also reflect laid-off workers who aren’t replacing lost group benefits with more-costly individual coverage.
Indeed, “our clients have done a lot to make insurance more accessible and more affordable,” says Larry Singer, a senior vice president at HR consulting firm Segal. “I have seen a trend away from permanent, high-cost life insurance,” he adds. “But on the term side, I haven’t seen any erosion whatsoever” in the corporate group plans being offered. Segal represents about 500 corporate clients through its Sibson HR consulting unit.
“Among our clients, typically the employer might pay for $50,000 of life insurance, because that’s the amount you can get tax-free,” notes Singer, with employees then having the option to buy more under the group plan. “And employers are indeed offering higher levels,” he says, with their actions being met by increasing employee demand and higher volumes of insurance in force.
It isn’t surprising that employees fail to recognize the value of life insurance, as the Limra numbers suggest, adds Singer. “People often don’t even think about insurance as a benefit,” he says. “From the employee’s point of view, it is so common that it’s almost a given.”
Explaining the value of group life coverage to workers — the relatively low cost and their increased accessibility — is a good way for employers to increase employee appreciation of the benefit, Singer suggests. “With individual life insurance, the underwriting is designed to screen 15% to 20% of the population” to reflect their substandard mortality risk. “But on a group basis, with the proper controls, that distinction could be waived.”
USAA’s Matus sees new reasons all the time to increase employee appreciation of the group life benefit. “It’s probably not in the news as much as health insurance,” she says. “But with unemployment so high, things are different from five years ago, when the employment market was more open, and a spouse could get a job” in the event of a partner’s death.
“Now, that may not be the case,” says Matus. “So in some ways life insurance is more important than ever.”