Individual life insurance is the future of employee benefits

By Bob Gaydos

Life insurance is a critical component of financial security, providing a safety net for individuals and their loved ones. Although 52% of Americans have some form of life insurance, most of these are group policies that provide inadequate coverage. It’s a situation that both carriers and employers should be deeply concerned about as it means that people are not getting the financial security – or the benefits – that they truly need.

With that in mind, the time is ripe for carriers to get serious about pushing more comprehensive policies such as individual life insurance. Individual coverage is not nearly as difficult to underwrite as it once was.

Group vs. individual life insurance

Group life insurance has long been a mainstay in most employee benefits packages, so much so that many employers don’t stop to think about whether these policies provide any real value for their workers. For example, consider how the typical payout of a group policy – $50,000 – is the same as it was 50 years ago. While $50,000 might have been a tidy sum in 1970, it’s only a drop in the bucket today. Also, group policies are non-portable, meaning that once a worker’s time with an employer ends, so does their coverage.

By contrast, individual policies offer far more customization to suit the specific needs of each person. Policyholders can choose their coverage amount and policy duration, and add additional coverage through policy riders. Moreover, individual policies remain with a policyholder regardless of any changes in employment, providing consistent protection throughout the policy’s duration. There is also the option of purchasing permanent life insurance, which lasts for the policyholder's entire life while also providing a tax-free savings account through the cash-value mechanism.

These advantages of individual over group life insurance are well-known to carriers. Even so, I don’t believe these advantages are effectively communicated to employers, most of which are still wedded to the idea that group coverage is the better option.

It’s not hard to understand why. Group policies are easy to put together, cost the employer nothing and provide guaranteed coverage for all employees regardless of age or health status. But that comes at the cost of meager coverage that employees are increasingly unwilling to settle for.

To clarify, I’m not saying that an employer should get rid of their group coverage. It’s still essential to provide a base amount of group coverage, say, $25,000 or one-year’s salary. It’s also important to offer voluntary guaranteed issue buy-ups on group policies of $100,000 or $200,000. The problem, though, is that this is still not enough coverage. The employee still needs an individual policy. So, my message to any employer would be, why not consider offering individual coverage alongside your group coverage? This would give you a highly competitive benefits package that not many employers currently offer.

The power of big data

The common argument against offering individual coverage to employees is that it requires each applicant to be fully underwritten. This typically means medical exams, blood tests and a lot of paperwork that most employees and their employers will be less than eager to embark upon. In all, this evidence of insurability can take a bit of time to gather, with a typical application taking up to six weeks to underwrite with traditional methods.

But what many employers aren’t aware of is that big data has changed this equation. With big data, it’s now possible to source all the required information on an applicant and complete the underwriting in minutes rather than weeks. This can really change an employer’s perspective on individual coverage, which now looks easy rather than tedious to put together.

However, to use big data, a carrier must have a large database and a digital path to the employee. This need to digitize is something a lot of carriers are only just walking up to, and while some progress toward increased digitization has been made across the industry, more is still needed. A lot more in some cases.

Communication is key

Of course, it's one thing to have great benefits, but what I've found from talking with employers is that most of them don't do a good job of communicating their benefits. This oversight can happen as early as the interview stage, when a lot of employers will try to avoid talking about their benefits at all. I suspect that this is because they don't want to talk about health insurance, which is always a tough conversation. After all, most health insurance in the U.S. isn't very good.

But I'd argue that an employer should at least be talking about the key benefits that differentiate them from the competition. This extends not only to new employees but also to current ones. You need to continuously remind them of your benefits, ideally every quarter. Personally, I've always found that the best approach is to contact their spouses. After all, they’re the ones who would claim any benefit from life insurance and will consequently have the most interest in ensuring the family is financially secure.

Group life insurance does serve a purpose, but it doesn’t compare to the level of coverage that an individual policy can provide. Employers must grasp this fact, and it's up to each carrier to impress this upon each of their clients.

Bob Gaydos is the founder and CEO of Pendella. He may be contacted at [email protected].