Valentine’s Alert: Educate Your Workforce on Providing for Their Loved Ones

February 07, 2012

According to a recent study by LIMRA, over 30% of U.S. households have no life insurance coverage, and this includes close to 11 million households that have a child under age 18 who SHOULD have coverage as part of their financial plan. “Well, that’s not my employees”, you may be thinking since your company benefits probably include employer-sponsored life insurance. On average, most companies provide a company paid benefit of 1 x the annual salary of their employees. But with 1 x their salary, that leaves many workers severely under-insured, since the common rule of thumb is that you need at least 6 to 10 times your annual income if you have loved ones at home that rely on your income.

Roughly half of the households in the LIMRA study said they needed more life insurance, but many of them didn’t take advantage of the group policy at work that would have offered additional employee-paid coverage. This option of buying a group life insurance policy is typically available during each fall’s open enrollment but sadly, many employees are too focused on picking their health insurance plan to spend time considering adding extra life insurance for themselves, their spouse, and in some cases, even for their kids.

With Valentine’s Day coming up next week, you can use the language of love to share the importance of your workforce having enough life insurance. Send out an e-card to your employees, reminding them how much coverage they have automatically, and what the voluntary group life insurance policy offers. Even if the next open enrollment is several months away, you plant the seed now. Even better, host a financial education workshop on the basics of life insurance, which can help your employees better understand how to decipher how much and what type of policy they need as a supplement to the group life plan.

So what are the advantages to your employees of purchasing life insurance coverage through your group plan versus buying an individual policy?

Guaranteed issue- Some group plans allow new employees to buy additional coverage within the first 30 days of hire with little or no underwriting, and the opportunity for all employees to increase their coverage 1 x during each year’s open enrollment without underwriting. That means no needles to scare the employee away!
Payroll deduction – For employees who feel they can’t afford to buy an individual policy when they see the yearly premium quote, the ability to pay a small amount each paycheck makes the coverage seem much more affordable when the premiums are payroll deducted.
Spouse and Child coverage – Many group plans allow the employee to purchase coverage for their spouse, which can be a big advantage if the spouse doesn’t work. Children can also be covered on the plan for a very minimal cost, typically for around $10,000 in coverage.

Of course, there are always two sides to a coin, so what are the disadvantages?

Limited or no portability – Once the employee leaves your company, they may find the conversion price is unrealistic or they may have no option to take the coverage with them, and this is the biggest risk to employees.
Cost – Since the group plan is typically annual renewable term, the cost may go up each year as the employee ages.
Coverage limits – The coverage limits are typically capped at a multiple of salary that the employee can purchase, such as up to 6 x salary, or a dollar limit, commonly $1 million in additional coverage.

Employees should be educated on what their families would receive as a death benefit from both the group life and any other coverage, including travel and AD&D. From this starting point, they can then make the informed decision on whether they need to supplement this coverage with an individual life insurance policy. So have a heart this Valentine’s Day, and spread the word to your workforce, and maybe your efforts will be recognized by a big box of chocolates!