Lewis & Ellis, LLC

Life insurance among benefits lost in unemployment

Life Insurance and Annuities
by Leon Langlitz
Life insurance among benefits lost in unemployment
Life insurance among benefits lost in unemployment

There has been a lot of attention paid to the tens of millions of job losses suffered in recent months, and what those changes have meant for workers' ability to find affordable health insurance. However, that kind of coverage was not the only thing lost when people were laid off; many lost other forms of benefits as well, including the group life insurance coverage employers provided.

The latest industry data listed by Insure.com suggests that group life insurance covers some 108 million Americans, outpacing the 102 million who have individual coverage. One of the big positives that comes with group coverage is that it is most often provided by employers, trade organizations or other such entities at little or no cost to the employee, providing a bit of financial security and certainty to tens of millions, with none of the potential drawbacks (such as difficulties in qualifying) that might be associated with individual coverage in some situations.

However, consumers also need to know what they are getting with group coverage. Apart from the fact that it will likely go away when workers are laid off, it also typically only provides a small amount of financial cover, usually around the value of a year's salary. While that kind of coverage can certainly be valuable, it is usually not adequate to meet financial needs in the event of an untimely death. Moreover, as employees age, finding affordable individual coverage becomes more difficult, further incentivizing them to sign up early.

Life insurance can provide certainty in highly uncertain times.Life insurance can provide certainty in highly uncertain times.

Common coverage
After health insurance, voluntary group life coverage is among the most common benefits offerings for employers, according to McKinsey data. While sales of new policies continue at a relatively low pace in comparison with other offerings — likely due to how common it already is — they still outpace coverage for disability, dental plans, supplementary medical treatments not covered by traditional health insurance, accidents, critical illness and vision care.

However, industry analysis indicates that insurers offering such coverage may not always do enough to educate consumers about what these products (or life insurance in general) can do for them.

The importance of individual coverage
With millions losing their jobs in recent months, and a broad understanding of the value life insurance provides, there may be an opportunity for some people to seek out new coverage options. Industry surveys dating back years show that people know why life insurance is important, whether they have coverage or not, but also that those who go without tend to dramatically overestimate the cost of obtaining such coverage. That disconnect could be a major impediment to them seeking individual policies after losing group plan participation due to unemployment.

It is certainly important for everyone to have a level of financial security they are comfortable with, and thus it might be tough to find space in a suddenly constrained budget for even a low-cost life insurance policy. Nerdwallet notes that given the size and gravity of the current downturn, some insurers are making changes to accommodate policyholders' evolving needs. For instance, one major player in the industry indicated it will reinstate lost coverage as long as an employee is rehired within six months of being let go, with no penalties. Obviously this only applies in the event of a planned layoff-and-rehire strategy, but it could be the assurance employers and workers alike need.

For those without such flexibility, experts still urge that people who lose their jobs and want to continue their coverage should seek out the individual policies that best suit their unfortunate new circumstances as soon as they can. There may be temporary, low-cost solutions that allow workers to maintain some level of financial certainty in otherwise highly uncertain times.

Providing a clear picture
In times like these, with many companies still experiencing financial hardships and thus considering furloughs and layoffs, even a little certainty can go a long way for individuals. Money.com stressed that it's important for businesses to communicate how job changes affect employee benefits (including life insurance), and provide some next-step instructions that allow workers to pivot effectively. For instance, the way a furlough — even one that lasts for months — will typically see employees continue their benefits coverage even as they forego salary, and that must be clear so employees can make the most informed financial decisions possible during the furlough period.

In the event of a layoff, explicit information about what comes next is a must. For instance, some businesses are at least choosing to continue some benefits coverage for a set period of time, and life insurance may be included. In some cases, even if does not happen, insurers may allow employees to convert their low-level group coverage, and that also has to be discussed.

When companies and insurers alike do more to communicate with group life policyholders, not only in these times but in general, all involved are put in a better position.



Consultants to Contact