Growing Your Group Life Insurance Offerings

The year was 1911, the city was Passaic, New Jersey, and the company was the now-defunct Pantasote Leather Company. That’s when and where the first group Life insurance policy was issued.

Since then, employment-based life insurance has continued to grow. At the end of 2006, 170 million group life insurance certificates were providing $10 trillion of coverage to Americans—most of it employer-sponsored. This group coverage accounted for 47 percent of the face value of all life insurance in force in the United States, according to the American Council of Life Insurers.

As health insurance premiums continue to rise, we see life insurance playing an increasingly important role in employee benefit packages. Employees like life insurance benefits, too—once they have life insurance, they tend to keep it. The voluntary termination rate of group life insurance policies in 2006 was only 8.6 percent. Since many group plans are either contributory or voluntary (employee-paid), that indicates employees think group life insurance is a good value.

The most common form of group life insurance is term life, which provides coverage for a specified period, usually one year or more. Term policies provide no further benefits when the term expires, and no buildup of cash value occurs. If this insurance is not renewed at the end of its term, coverage lapses and no payment is made to the beneficiary in the event of death.

As with individual life policies, group policies can be purchased on either a participating or nonparticipating basis. Nonparticipating means the employer pays for the insurance on behalf of its employees. Most group life policies are nonparticipating—94 percent of those purchased in 2006.

Here are a few options available for enhancing your life insurance benefits:

Portability or Conversion Employees often can retain coverage when they terminate employment or after retirement by paying premiums directly to the insurer. Typically no proof of good health is required to convert to an individual policy. Many policies also offer Survivor Benefits, continuing as monthly payments or a lump sum payment to the spouse of an employee who dies.

Accelerated Benefits To help ease the financial burden that often accompanies a serious illness, accelerated benefits allow the terminally ill insured (employees and covered spouses) with a life expectancy of six months or less to receive an advance payout of a percentage of their group life insurance face amount. For example, an employee may accelerate up to 50 percent of the face amount of their insurance, with a minimum of $10,000 in coverage, to a maximum of $250,000.

Waiver of Premium Also known as “continued protection,” this option waives premium payments for a disabled employee after a specified waiting period. Of group life policies in force in 2006, 94 percent, or 45 million, provided for waiver of premium in case of disability.

Will Preparation To help the insured protect their assets and secure their families’ financial future, this option covers the legal fees associated with preparing or updating a will, when the insured or their spouses use a participating attorney.

Travel Assistance Emergency travel assistance provides help during emergencies away from home or while traveling internationally. A Repatriation Benefit supplies an additional benefit that helps to pay expenses related to transporting the remains of employees who die more than 200 miles from their homes.

Additional Life or Supplemental Life Many insurers offer additional or supplemental life coverage as an option with group life insurance. Insured employees may purchase life coverage for their dependents, including spouses and eligible children, at group rates.

Accidental Death and Dismemberment (AD&D) Because accidents can occur at any time, AD&D provides 24-hour accident coverage. The insurance pays a death benefit for death by accident, or pays benefits for accidental disabling injuries covered by the policy.

Whole Life Unlike term insurance, permanent life (or Whole Life) insurance provides protection for as long as the insured lives. Permanent life policies also have a savings component, building cash value that can help families weather financial emergencies, pay for special goals, or provide income for retirement years.

The annual premium for traditional Whole Life policies remains constant throughout the life of the policy. In earlier years, the premium is higher than the actual cost of the insurance, but in later years it becomes substantially lower. The excess amount of each premium in the early years is held in reserve as the policy’s cash value. This cash value grows over time from investment earnings and future premium payments, providing funds the insured can borrow as a policy loan. If a policyholder decides to give up the insurance protection, he or she receives the cash value upon surrendering the policy, less any outstanding policy loans.

Please keep in mind that insurers individually underwrite Whole Life policies. This means that if you want more than a minimal amount of Whole Life coverage (such as $25,000), the insurer will require you to complete a standard life insurance application, which is more comprehensive than a group insurance application. If you have poor health, the insurer can decline to cover you for higher amounts.

Adding options to your group life program can be a cost-effective way to enhance your benefits package. For more information, please contact us.

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Articles are provided for your personal, non-commercial use and may not be reproduced in any form. Articles are based upon analysis of information sources, necessarily condensed and, therefore, not applicable to all situations. Though we believe them to be accurate, facts and conclusions are not guaranteed. Articles are provided with the understanding that they do not constitute legal, accounting or other professional advice, which should be sought from professionals in those fields. © 2006 Thoits Insurance. All rights reserved.

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