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What is supplemental life insurance and how can it improve your employee benefits package?

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What is supplemental life insurance? It’s a type of life insurance policy that’s often available through work and provides additional coverage. If your employees need affordable, accessible life insurance options to fill in coverage gaps – and if your company needs to boost employee morale and support recruitment and retention – supplemental life insurance could be the solution.

What is supplemental life insurance?

Supplemental life insurance fills in coverage gaps and provides additional life insurance coverage.

According to Investopedia, employers often provide life insurance as an employee benefit, but these life insurance policies may not always provide sufficient coverage. To address this issue, some employers also offer supplemental life insurance coverage. Alternatively, employees may have the option of buying supplemental life insurance on their own (directly from the life insurance company), or they may have access to a supplemental life insurance policy through a union or organization to which they belong.

Many Employees Depend on Workplace Life Insurance

LIMRA says approximately two-thirds of employed Americans rely on workplace life insurance to meet their coverage needs. Millennials are even more likely to rely on workplace coverage. Additionally, 76 percent of workers with minor children depend on workplace life insurance to protect their loved ones.

How many workers have access to group life insurance?

The U.S. Bureau of Labor Statistics (BLS) says 60 percent of civilian workers have access to life insurance benefits through work. The take-up rate for this group is 98 percent. Certain types of workers are more likely to have access to life insurance than others. For example, 85 percent of workers in management, business and financial occupations have access, but only 34 percent of workers in service occupations do. Employees who work at large companies, are in a union or work full-time are also more likely to have access compared to employees who work at small companies, are not in a union or work part-time.

How much life insurance do workers need?

Although many workers have access to job-based life insurance, many have insufficient coverage.

According to Investopedia, experts typically recommend purchasing at least 10 times your annual income in coverage. However, some individuals may need more or less than this depending on their specific situation.

For example, employees with young children may want coverage with death benefits that are large enough to replace more than 10 years of income. Workers who have dependents with special needs or significant debt may also want additional coverage.

Many group life insurance policies have fairly low coverage amounts. For example, a life insurance policy with a death benefit of $100,000 may seem significant, but it may not stretch far. Imagine a man earns $50,000 a year has a policy with a $100,000 death benefit. He has young children and is his family’s only breadwinner. When he dies, his wife receives the $100,000 death benefit. Some of this money goes to cover hospital bills and funeral costs. The remaining money helps them make ends meet initially, but even with careful budgeting, it runs out after two years. Now his wife has to find a way to make money while caring for her young children.

Of course, any life insurance is better than no life insurance. Even a relatively modest policy of between $25,000 and $50,000 will help loved ones deal with their immediate costs and needs, which will give them breathing room to figure out their next steps. Nevertheless, these employees may want more robust coverage than their group life insurance policy provides. Supplemental life insurance coverage is a good way to secure this.

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Buying Supplemental Life Insurance Without a Medical Exam

Although employees can purchase life insurance on their own, life insurance offered through an employer may be preferable because it is often available without a medical exam. This is especially important for employees who have pre-existing health conditions that might make it difficult for them to obtain individual life insurance on their own.

Data from the National Health Interview Survey shows that approximately 27 percent of nonelderly adults had a declinable health condition in 2018. Insurers may deny people with pre-existing health problems coverage or charge them higher (possibly unaffordable) premiums.

For this reason, some employees may prefer to obtain their primary life insurance and supplemental life insurance policies through work.

The Convenience of Payroll Deductions

When supplemental life insurance is available through work, employees often pay for coverage using payroll deductions. This makes maintaining coverage easy. Instead of having another bill to pay each month, they simply sign up to have the supplemental employee life insurance premiums deducted from their paychecks. This option can also reduce the risk of policy cancellation, which can happen if the policyholder misses payments or forgets to pay.

Reasons to Consider Offering Supplemental Life Insurance to Your Employees

Employers who already offer group life insurance may want to add supplemental coverage to their employee benefits package. Some reasons to consider offering supplement life insurance policies in addition to basic life insurance include:

  • Supplemental life insurance can help you attract and retain workers. Employers who want to expand their benefits to attract employees should consider life insurance. LIMRA found that eight in 10 U.S. workers are interested in life insurance employee benefits – four in 10 are extremely interested. Generation X, Millennials and workers with young children are especially interested in workplace life insurance coverage. Offering supplemental life insurance can help you attract these workers. Coverage also gives current employees one more reason to stay at your company.
  • Supplemental life insurance can help reduce financial stress. According to Experian, 71 percent of U.S. employees say financial stress is negatively impacting their work and personal life, and 84 percent of HR leaders worry their employees’ financial problems will result in reduced productivity. Offering a good benefits package that includes supplemental life insurance is one way to reduce financial stress to help employees focus on their jobs.
  • When you offer supplemental life insurance as a voluntary benefit, your costs are minimal. Supplemental life insurance is typically a voluntary benefit, meaning employees choose to enroll. Since enrollees typically pay for the premiums themselves, your company only incurs minor administrative costs. Although your employees are paying for coverage, they may still appreciate receiving coverage through work because it gives them access to affordable rates, streamlined underwriting and convenient payments via payroll deductions.

Should you add supplemental life insurance to your employee benefits?

Now that you know what supplemental life insurance is and how it can help employees and employers alike, it’s time to consider whether you should add this product to your employee benefit offerings. Higginbotham can help you craft an employee benefits package with the needs of your workers in mind. Learn more.

Not sure where to start? Talk to someone who wants to listen.

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