This durable financial solution offers lifelong, flexible protections
by Annise Henson
Ms. Henson is a product manager with Unum, in Chatanooga, TN. Visit unum.com
This article is presented as part of our coverage of Life Insurance Awareness Month, sponsored by Life Happens.
Life insurance should be a basic building block of an employee’s financial foundation, but too often it’s overlooked, not purchased in sufficient amounts or not matched to the right needs.
Luckily, the market has an array of life products that can help employees create a safety net that addresses two key financial needs – protecting financial responsibilities in life and offsetting expenses that mount up at death. The offerings best suited to meet these needs are term life and whole life – a term and perm combination.
Building a firm financial foundation
Group term life insurance protects the present and immediate future. For people in their prime working years – when building a financial foundation, buying a home and often raising children are priorities – term life insurance provides a benefit that may equal multiple times an annual income, enabling beneficiaries to maintain their financial footing in the face of housing costs, college bills and retirement savings. For two income households, term life for each partner is essential to make up for lost income if one of them were to pass away.
But term coverage has some factors to consider. Term coverage purchased through the workplace is typically tied to employment and may or may not be portable if the employee leaves a workplace. Rates will also typically increase every five or ten years as the insured grows older. The upside is that the financial necessity for this coverage tends to taper off as kids leave home, careers wind down and employees’ responsibilities change.
Whole life, in contrast, is purchased to help pay for a certainty – expenses at the time of death, including funeral costs and outstanding medical bills. Unlike term life, however, whole life offers level rates that don’t change over time, flexible benefits options, and a policy that is owned by the employee and fully portable. Level premium whole life insurance is therefore a predictable budget expense moving into retirement, when most individuals have reduced income and rely on savings, investments and Social Security.
Putting these puzzle pieces together
Many employers provide employees with group life insurance coverage that offers a benefit of up to $50,000. This coverage is beneficial, but it falls far short of the standard recommendation of BankRate.com for coverage of seven to ten times your annual income. By offering voluntary term life as a supplement to the group coverage, employees will have the option to buy additional coverage on an employee-paid basis. Available at affordable group rates – and often with a guaranteed issue amount – employees can reach a level of coverage that best suits their individual or family needs during the working years.
Term life coverage is designed for use during a specific term or span of time. Once financial obligations lessen, higher benefit levels of term life may not be needed and increasing premium costs may become difficult to meet. In addition, most group term life coverage ends when an employee reaches retirement age or comes with a mandatory benefit reduction at either age 65 or 70.
Offering whole life as a voluntary workplace benefit in combination with term life provides employees with financial protection from their working to retirement years. Those concerned about retirement finances are now recognizing that both Social Security and Medicare will probably be unable to continue paying benefits at current levels, and defined pension plans are nearly extinct. Whole life premiums are fixed at the time of purchase and will never increase over the life of the policy, making it easier to plan for retirement expenses.
A whole life policy builds predictable cash value over time. The policyholder can borrow against this cash value or withdraw it from the account, or many individuals will use the cash value to guarantee that the policy will not lapse.
In addition, many whole life plans include desirable options such as eligibility for spouses, children and grandchildren, as well as riders for long term care, accidental death and living benefits in the case of a terminal illness.
Some insurers also offer an option to pay up the policy by age 65 or 70, adjusting the premium accordingly. This relieves retirees from worrying about the additional expenses of monthly premiums while benefitting from the full coverage the policy offers. When offered at the workplace, some whole life policies are issued on a guaranteed issue basis. Employees can purchase up to the guaranteed issue amount without medical underwriting. Medical questions or health exams may be necessary for employees to qualify for coverage amounts above the guaranteed base.
At a time when savings are thin and the social safety net is fraying, the benefits from a whole life policy will help surviving family members pay for outstanding medical bills, final expenses and funeral costs.
The market opportunity
While 80 percent of Americans say life insurance is something everyone should own, LIMRA’s 2015 Insurance Barometer reports that less than half (43 percent) are covered by life insurance. LIMRA estimates that this translates to more than 100 million adult Americans without life insurance protection. Even more surprising, 30 percent acknowledge their need for some or more protection, yet very few say they are likely to purchase any in the next year, LIMRA reports.
With so many uninsured and underinsured Americans today, advisors have an excellent opportunity to work with their clients to offer a viable solution. Offering whole life as a voluntary workplace benefit in combination with voluntary term life can help employers update their benefits package at no additional cost, while providing employees with lifelong, flexible financial protection.