The Importance of Life Insurance for Financial Security
by Bradd ChignoliMr. Chignoli is senior vice president, National Accounts, Group Benefits, MetLife. Visit www.metlife.com
Despite the improved economy, employees still have significant financial concerns. From student loan debt to caregiving responsibilities, coupled with stagnate wages, today’s workforce faces many financial issues that cause stress and loss of productivity throughout the workday. In fact, MetLife’s 16th annual U.S. Employee Benefits Trend Study (EBTS) finds less than half of employees feel in control of their finances, and 52 percent report living paycheck to paycheck.
Employees increasingly expect their employers to take an active role in helping to achieve financial goals and reduce financial stress — according to the EBTS, 50 percent of employees feel employers have a responsibility for the financial wellbeing of their employees. Alleviating financial anxiety is business critical for ensuring employees come to work focused and are productive throughout the day.
An important way to do this is by communicating how insurance products outside of healthcare coverage can help to protect savings and income. Income-loss protection through life insurance, as well as disability insurance, provides employees and dependents relief from anxiety surrounding unexpected situations that could result in the loss of a primary household wage earner.
A Shield Against Financial Loss
Life insurance plays a critical role in protecting families against financial hardship. A MetLife-sponsored study, “The Social and Economic Contributions of the Life Insurance Industry,” authored by experts at The Brattle Group, a global economic consulting firm that advises both government agencies and private companies, looked at (among other findings) what happens to surviving spouses after the death of a primary wage earner. Without life insurance, a third saw their standard of living decline by more than 20 percent. With life insurance, less than a quarter experienced a decline that large.
In fact, the total amount of financial protection provided by the life industry in 2016 was $20.3 trillion – an amount equal to 109 percent of the U.S. economy. Approximately 60 percent of Americans are covered either individually or through their workplace, with the average policy equal to 2.5 years of annual household income. Such multi-year financial assistance could potentially provide households flexibility and time to reorganize their lives by, for example, finding a job or reducing living expenses.
Research cited by the Brattle Group in the study found that, on average, life insurance reduces the percentage of households experiencing severe financial deterioration following the death of a primary earner from 33 percent, for those without life insurance, to just 6 percent, for those with life insurance.
The paper concludes that “[life insurance] plays a unique role…in the safety and security it provides to individuals.”
Reducing Reliance on Social Safety Nets
By providing financial security to families across income levels, life insurance and associated products often supplement social insurance and welfare programs, which reduces pressure on government support.
The life insurance industry supplements the social safety net in the United States by providing vital financial protection to tens of millions of families and plays an important role in easing the burden on government programs. Pressure on social spending is alleviated thanks to the burdens insurance companies take on.
The importance of life insurance to society is underlined by the impact of its pay outs. According to the Brattle Group study, the life insurance industry paid out survivor benefits totaling more than $450 billion between 2010 and 2016, which is about 60 percent of the amount Social Security paid out to beneficiaries.
In fact, according to the Brattle Group, if the private life insurance industry did not exist, it’s likely the government would feel pressure to replace some portion of the $1.1 trillion in payouts – which would happen through an increase in taxes and social spending. Yet, doing so could cause other financial ramifications for employers and employees.
This underlines the importance for employers to provide its workforce adequate insurance offerings as well strong communication during the enrollment period that effectively educate employees on how life insurance can make an impact in their current life stage.
The evolving workforce
The workforce is no doubt experiencing a shift. Yes, there is endless discussion about Millennials, but, the entire workforce is not just one generation. In fact, it’s four – soon to be five. The life insurance needs vary among all these generations, so it is critical that employers help their employees determine the best coverage for their specific needs.
It’s also true that there is a generation of people who are taking care of both their children and their parents, known as being ‘sandwiched’ between two ends of responsibilities. This group is looking for even more support financially. The Pew Research Center found that 15 percent of middle-aged employees are financially responsible for both an aging parent and a child. That number is likely to rise as boomers continue aging.
Primary earners with caregiving responsibilities on both ends are in an incredibly precarious financial situation should a tragedy occur that leaves their dependents without support. Life insurance provides a safeguard so there is a back-up plan for loved ones financially.
Life insurance is an important way for people across income levels and demographics to protect their loved ones. It’s imperative for employers to understand what stresses and anxieties their workforce brings to the office each day and to communicate the tools that are available to give them the peace of mind in knowing their dependents are supported.
Together with non-medical insurance products such as disability, accident and health and hospital indemnity, life insurance, as well as other benefits that help alleviate financial burdens – such as student loan assistance, subsidized child care and financial planning tools – employers can drive loyalty among employees in today’s hot job market, while embracing their role in the modern work world.
As the workforce continues to evolve, employers have a responsibility to change along with it – and to meet our employees where they are. Effective communication and engagement around benefits can make a world of difference to an employee and their family.