If millions of American adults have no life insurance, that creates dilemmas for families and the entire nation. It doesn’t have to be that way.
First, some background. In recent years, the cost of employer paid benefits has risen dramatically.
While current benefit expenses adversely affect the ability of any employer to operate within the bounds of solvency, employees nevertheless continue to demand further enhancement of existing benefits.
Therein is a source of employer/employee frustration. It likewise represents a potentially large human and labor problem.
Concurrently, lower and middle wage earners are finding it increasingly difficult to receive individual attention when they look for life insurance protection. Many agents simply can’t afford to offer the smaller life policies that correspond to the expectations and economic constraints of individuals in these socio-economic strata. This lack of access to much needed individual coverage fuels employee dependence upon employer-provided programs.
All of these factors have combined to propel growing interest in, and actual growth of, voluntary life sales.
The sponsorship of a true guaranteed issue voluntary life insurance program directly addresses these issues and provides distinct advantages to employer and employee alike. It allows the employer to introduce a new program which, despite its voluntary no-participation requirements and non-contributory nature, is construed by employees to be a legitimate benefit (as evidenced by typical employee participation rates of 40%-70%).
Furthermore, it does this without significant out-of-pocket employer cost. Direct expenses are limited to providing the employee on-the-job enrollment time and a methodology for payroll deduction. This approach fills the gap left by the lack of access to individual life products for lower and middle wage earners.
Until recent times, no single voluntary product approach could adequately address all employee security needs. Traditional universal life is often used but the variable interest rate creates more uncertainty than many employees can tolerate. Term life has affordability on its side, but its short-term focus robs employees of the lifelong protection which many need. Traditional whole life is good for long term needs and guaranteed benefits, but it is way too expensive for a good number of employees.
Today, however, one type of voluntary product is emerging that may represent the single best solution possible.
The base plan is true guaranteed issue interest-sensitive whole life (ISWL) insurance. This offers employers and employees the best of both worlds in that it combines traditional lifetime guarantees with affordable costs and strong values based on current interest rates and mortality assumptions.
The current interest rates mirror those in the prevailing economy at large, and are not guaranteed indefinitely. Interestingly, on a worst case basis, the product can turn into a traditional life policy. In other words, it not only combines the lifetime guarantees of traditional products, but also passes on to the employee the advantage of current interest rate earnings and mortality assumptions.
The guarantees inherent in this product are in direct contrast to other offerings in this marketplace, most notably that of UL insurance.
ISWL products place the onus of risk on the insurance company, whereas UL places the onus of risk on the consumer. In addition, in the face of declining interest rates or worse than expected mortality experience, UL products reserve the right either to increase premiums or to lower coverage amounts. No such possibility exists in the ISWL product configurations.
When evaluating both types of product, consider the old axiom: “When an insurance company maintains the ability to alter rates in its favor, it is not a question of if, only when, such a change will occur.”
ISWL for the voluntary market was developed with the absolute conviction that a voluntary benefit plan must deliver on its promises and that unexpected rate changes are intolerable in an employer/employee context.
Donald S. Hardy is founder and owner of QuantumBenefits.com, an Atlanta insurance agency. His email address is firstname.lastname@example.org