Why employers should offer options for individual life insurance
Benefits brokers must be willing to think creatively to determine how they can put together the most competitive benefits package.
Since the 1940s, employer-provided life insurance has been a staple of company benefits packages. These are typically group policies packaged by licensed benefits brokers who specialize in creating benefits packages for employees, and the policies usually provide guaranteed coverage and payouts for the insured’s beneficiary.
While group insurance policies are easy to put together and available to all employees at an organization, they have some major downsides. For a start, most group policies tend to be one-size-fits-all with limited customization, which may not suit employees with specialized needs.
Another issue is the meager payouts, often between $10,000 and $50,000, amounts that typically wouldn’t even cover one year’s salary for the family of a departed insuree. Perhaps the worst issue with group policies, from an employee’s perspective, is that coverage doesn’t transfer when an employee switches employers.
At a time when many businesses are struggling to find and retain staff, offering the right benefits package has never been more important. With that in mind, employers should consider enhancing their benefits with individual life insurance benefits to supplement their group policies. While making such a transition does present a few challenges, the good news is that recent tech developments have made the process a lot easier.
Group versus individual life insurance
In the insurance industry, there are two significant avenues through which consumers might receive coverage: insurance brokers and insurance agents. While the terms are often used interchangeably, there are actually key differences between the roles these people play. Insurance agents usually work directly for insurance companies and typically sell individual policies directly to consumers. To do so, an agent must gather the required documentation for underwriting from each insuree. This can often take weeks or even months, especially when it comes to health documentation that hasn’t yet been digitized.
By contrast, insurance brokers are licensed professionals that work directly with a company to create benefits packages for their employees. Since benefits brokers tend to work long-term with organizations, they tend to have good working relationships with employees as well as access to a lot of employee data for underwriting purposes. Benefits brokers also primarily deal with providing group policies, which, due to the lower possibility for adverse selection (i.e. extending coverage when the risk is higher than the insurer anticipated), have much more relaxed underwriting requirements than individual policies. As such, coverage is near guaranteed for each employee. However, the catch is that an employee can’t take it with them when they make a career switch.
Compared side-by-side, individual life insurance is typically far superior to group coverage. While the task of qualifying for an individual policy may be more arduous, a successful qualification will provide insurees with more extensive coverage and a larger payouts for their beneficiaries. Best of all, individual life insurance remains with insurees even when they switch employers.
Expanding individual life insurance benefits
Again, the largest roadblock to expanding a company’s individual life insurance offerings is the long underwriting process, which, with traditional methods, can take 45 to 60 days to complete. The long wait time is due not only to the large number of medical documents that must be submitted and reviewed by an underwriter but also to the health exams that an applicant must undergo. Unless these delays can be dramatically reduced, it will remain impractical for a company to provide individual life insurance benefits to their employees.
Fortunately, the insurance sector, like almost every industry today, has undergone a digitization revolution over the past few years. Medical documents are now increasingly available in digital format, making for easier discovery and sharing. Other benefits of digitization include the development of digital omnichannels that allow users to shop for life insurance online with greater ease and security. In fact, people have become so comfortable with shopping online for insurance that according to LIMRAs 2022 Insurance Barometer Study, there’s been a 29% increase in online life insurance purchasing over the last six years.
But the biggest change has been in the realm of big data and AI-powered analytics, which can allow benefits brokers to quickly determine a customer profile, decide on a suitable risk class, and form a pricing model, all in a matter of minutes. Such a near-instant underwriting process means that brokers should have no issue with qualifying a new employee as part of the onboarding process.
Admittedly, these tech advancements have happened at such a fast pace that it’s no wonder that 50% of insurance brokers admit struggling to keep up with it all. Even here at Pendella, we’ve seen our staff members have difficulty staying on top of the latest developments. But we’ve also seen that the latest insurtech innovations can bear fruit when brokers are committed to integrating them with their current systems. Therefore, benefits brokers should make it a priority to increase the pace of their digitization and learn the new tools of the trade.
But providing individual life insurance benefits won’t be enough on its own to get people to sign up. Employees, both new and current, also need to be informed on the advantages of individual life insurance. Too many people are unaware that their group coverage is probably inadequate. Many Americans also hold the mistaken belief that individual life insurance is too expensive, even though the average cost of a life insurance premium per U.S. household is just $993 a year, or less than $100 a month.
With that in mind, benefits brokers should also make a concentrated effort to inform and educate employees on the advantages of signing up for individual life insurance. Since they presumably have closer relationships with employees from working alongside them, brokers can provide the necessary friendly face and in-person advice to sign people up.
Read more: Workplace life insurance and the lifecycle of needs
In the quest to help employers find and retain the best talent, benefits brokers must be willing to think creatively to determine how they can put together the most competitive benefits package. Making the switch from focusing on group life insurance to individual can be a key part of that strategy, especially if such an effort is backed up with the latest digital underwriting techniques and a committed educational effort.
Bob Gaydos is the Founder and CEO of Pendella.