The Impact of COVID-19 on Life Insurance Ownership
COVID-19 has undoubtedly been one of the most significant events of our time, impacting every aspect of our lives. While it may seem like the pandemic has taken a backseat in today’s headlines, the Life Insurance Marketing and Research Association (LIMRA) has observed that COVID-19 continues to influence life insurance ownership. This global crisis has made people more aware of the need to protect their loved ones and has emphasized the precariousness of life itself.
In the midst of intense competition for attracting and retaining great employees, providing the right benefits has become essential. With employees increasingly relying on workplace life insurance to safeguard their families, a strong life insurance policy has become an attractive benefit. However, the effectiveness of such a policy depends on the financial strength of the company issuing it. As Life Insurance Awareness Month concludes, it is crucial for businesses to ensure they are providing appropriate coverage and benefits for their employees.
Here are three key concepts that companies should consider for their employees:
1. Employer-paid, Individual Term Life Insurance:
For employers, life insurance can serve a greater purpose than simply replacing income. Surprisingly, 42% of Americans say their household would face financial hardship within six months if a wage earner were to die unexpectedly. By providing a life insurance policy, employers can offer an extra incentive to key personnel, include it as part of a well-crafted benefits plan, and provide a valuable benefit for employees.
Employers should consider offering individual, simplified-issue term life insurance policies to key employees. These policies eliminate the hassle and uncertainty of medical underwriting and are an excellent way to provide a fringe benefit. Such a plan can allow employees to name their own personal beneficiaries. Additionally, highly compensated individuals whose coverage is limited under an employer’s group life insurance plan can benefit from an employer-paid, guaranteed 10-year level term policy. This type of fringe benefit is particularly suitable for industries like manufacturing, distribution, legal, building/construction, medical services, public entities, and financial services.
2. Understanding Group vs. Individual Life Insurance Options:
As open enrollment season approaches, employees are often presented with various choices to elect life insurance coverage for themselves and their families. Evaluating these options can be confusing, and many employees opt for optional insurance, which can lead to higher premiums and limited policy features compared to what’s available in the individual life insurance market.
For companies, two important factors must be considered during the enrollment period. Firstly, it is crucial to determine the adequate coverage required and understand the types of policies available by consulting with someone knowledgeable about life insurance. The provider of the policy should be a partner in this process since employees may need to be underwritten for personally owned policies.
Secondly, it is essential to recognize that about two in five adults lack sufficient knowledge about life insurance. Therefore, a strategic communication process should begin before the open enrollment period. Employees need to understand the costs and product options available to them. In some situations, due to health considerations, an optional employer-sponsored plan may be the only available choice. In such cases, companies should prepare comprehensive communications for employees and organize working sessions where they can ask questions. Employers may want to consider involving an outside representative from the provider who can provide specific answers.
3. Providing Key Person Coverage:
Losing a key employee can have a devastating impact on a business, particularly for small to medium-sized companies. The unexpected death of a key employee with specialized knowledge or essential account relationships can lead to setbacks in morale and revenue. A cost-effective solution to this problem is the purchase of a key person life insurance policy. This type of coverage is generally a term insurance policy that aligns with the needs of the business.
In this case, the business becomes the owner, beneficiary, and payer of the policy. The proceeds can be used to offset the short-term losses resulting from the untimely death of the key employee and provide a buffer if the replacement commands a higher salary.
Life Insurance Awareness Month presents an opportunity for employers and employees to become more informed about this critical protection. Even for those who understand the value of life insurance, there is still a noticeable gap between those who need coverage and those who have it. Employers can seek assistance from experts like CBIZ to better understand their options for employees and ensure they provide the best possible coverage.
In conclusion, COVID-19 has reminded us of the vulnerability of life and the need to protect our loved ones. By providing adequate life insurance coverage and benefits, businesses can not only attract and retain great employees but also demonstrate their commitment to the well-being of their workforce. Life insurance should be seen as an essential component of a comprehensive benefits plan, and companies should take the time to understand the different options available to them.