The Hidden Benefits of Life Insurance

Over the years, I’ve advised many of my clients on the importance of life insurance. You’d think everyone would understand the need for life insurance in the event a wage earner or family member dies. Yet LIMRA estimates 41% of U.S. adults — 95 million people — have no life insurance at all.¹ And 43% of those with coverage believe they need additional life insurance.² These statistics tell me we still have a lot of work to do in helping our clients understand the need for life insurance and how to adequately protect themselves. That’s where good benefits communication comes into play.

Employers clearly feel an information gap exists among their workers when it comes to life insurance.³ In fact, only 41% of HR professionals say their employees understand the need for life protection very well. Improving benefits communication efforts at the policyholder level can reap strong rewards, helping clients who don’t have life insurance understand the valuable need for this coverage.

Good communication can also help clients who don’t have enough coverage determine the right amount of life insurance for them and their families. LIMRA says 44% of those who say they need life insurance haven’t bought because they don’t know how much to buy.

While many policyholders struggle to figure out how much life insurance they need, many of those with existing coverage simply don’t understand the important features of the policies they own. I find it valuable to emphasize these 10 commonly overlooked features of life insurance plans with policyholders when communicating with them about their benefits:

• Waiver of premium. This feature pays the premium of a policy if a serious illness or injury causes the policyholder to become disabled.
• Accelerated death benefit. This feature allows policyholders to receive cash advances against the death benefit of their policies if they’re diagnosed with a terminal illness. Many people with this benefit use the money to help pay for treatment and other expenses when they have only a short time to live.
• Guaranteed purchase option. With this feature, policyholders can purchase coverage at designated future dates or life events without proving they’re in good health.
• Long-term care riders. Some life products include this option, which allows individuals to use the benefits of their policies to pay for long-term care in exchange for a reduced life benefit.
• Spouse or child term riders. Life policies with this feature allow policyholders to purchase term life insurance for their spouses or dependent children, up to age 26. This option can be a more affordable way to purchase coverage for those who can’t afford separate policies.

• Cash value plans. This type of policy pays out upon a policyholder’s death and also accumulates value during their lifetime. Individuals can use the cash value as a fund from which they can borrow and use to pay the policy premiums later.
• Mortgage protection. Some term life plans are designed to provide mortgage protection for homeowners, typically paying a decreasing benefit that corresponds to the outstanding balance of the mortgage.
• Cash withdrawals and loans. Many universal and whole life policies allow policyholders to withdraw or borrow money, using the cash value of the policy as collateral. Interest rates tend to be relatively low. Individuals can also use the cash value of their life policies to pay their premiums if they need or want to stop paying premiums for a period of time. Policyholders must pay back the loan, or your beneficiaries will receive a reduced death benefit.
• Survivor support services. Some life policies offer services that provide objective financial and legal assistance to beneficiaries.
• Employee assistance programs. This feature makes resources available to policyholders when they have problems that can affect their personal and professional lives. Resources are usually free and help address issues such as substance abuse, stress, marital problems, legal concerns and major life events.

Advantages of Voluntary

LIMRA research shows that 57% of people who are under-insured prefer to buy life insurance face to face. And 18% of them prefer to purchase at the workplace. Voluntary life insurance can be an important part of a company benefits package and can help meet the needs of employers and employees. This coverage can be sold as a complement to company-provided life insurance or as a standalone offering. Because it’s typically employee-paid, voluntary benefits allow employers to expand their benefits packages at little to no additional cost. Some other features of voluntary coverage include:

• Portability. With individual policies, the employee, not the employer, owns the policy, which means workers can keep their policies if they leave their jobs.
• Simplified underwriting. Both guaranteed issue (no health questions for underwriting) and simplified issue (minimal health questions for underwriting) are available, if participation and eligibility guidelines are met.
• Variety of life insurance plans. Employees now have choices in plans to meet their individual needs when it comes to protecting their families and building cash value.

Voluntary life coverage, when offered in conjunction with one-to-one benefits counseling sessions, can be an especially effective combination in an employee benefits plan. In fact, almost 60% of employers believe one-to-one benefits counseling sessions can strongly improve employees’ understanding of their benefits and their coverage needs. And 55% of employers rely solely on this type of benefits communication and education method. Companies that work with insurers to improve benefits education can boost participation in their programs, which helps ensure employees have the coverage they need to protect their families and their lifestyles.