Who needs to buy life insurance? Doesn’t it come with the job?
American workers have gotten so used to getting free life insurance coverage as a benefit through their jobsthat agrowing number of them — especiallyyoung workers who havedelayed starting families — aren’tbothering to go through thehassle and expense of purchasing individual policies.
For the first time in history, more Americans are covered by employer-based group life insurance than by individual life insurance policies.
A study published last week by LIMRA, a trade organization for the insurance industry, found 108 million Americans have life insurance coverage through their workplace, compared with 102 million covered by individual life insurance.
This is the first time the number of people covered by workplace insurance has surpassed those covered by individual insurance since the organization began tracking U.S. life insurance ownership in 1960.
“To me, it’s not about changing attitudes toward life insurance. Consumers value life insurance,” said Anita Potter, assistant vice president for workplace benefits at LIMRA in Windsor, Conn. “What is changing more than anything else is where they are getting it.”
At a time when many Americans fear outliving their retirement nest eggs more than the consequences of losing a primary breadwinner to an early death, many people see life insurance as a household expense that can be eliminated from the budget — especially if it comes down to a choice between that and giving up certain creature comforts many take for granted, such as cable TV.
A recent survey by Austin, Texas-based insuranceQuotes.com found 37 percent of adults do not have life insurance. The expense was the most commonly cited reason, with 59 percent of those without a policy claiming they couldn’t afford it.
Such attitudes are rather alarming to those in the industry.
“Many adults, particularly millennials, believe that since they’re currently healthy, they do not need life insurance,” said Laura Adams, senior insurance analyst at insuranceQuotes. “But rather than being viewed as an expense, life insurance should be viewed as an investment as well as a safeguard for your spouse and children.”
Those adults without a policy in the insuranceQuotes survey largely belonged to the millennial generation, between ages 18 and 29; were more likely to be single; had less than a college degree; and earned less than $50,000. Those without a policy said they would rather spend the money on food and utilities, put it in savings, pay down debt on their car or student loan, or donate it to charity.
The 2016 LIMRA study is based on a sample of 4,167 households.
Etti Baranoff, a professor of insurance and finance at Virginia Commonwealth University, said the problem with employer-based life insurance is that it’s not done based on a need analysis. It’s usually an employee benefit that pays an employee a death benefit equal to his annual salary, or sometimes twice the salary.
When employers provide life insurance, it sends a message to the workforce that companies care about employees and their families. The company can usually deduct premiums for $50,000 of term insurance coverage as a business expense, and under federal law, no employee can be turned down for life insurance coverage as part of group underwriting.
Employerscan offer additional life insurance coverageto employees on a voluntarypayroll deduction basis.
Ms. Baranoff would argue that there’s some value in checking out the life insurance offerings that an individual can buy, even if it sounds like just another regular bill.
“An insurance agent would look at the assets and liabilities for a family and find out where there would be a gap if the person dies,” she said, referring to expenses such as mortgages, college debt and even day care expenses that would come up if one parent died.
She said demographics also are an important force in driving the downward trend in life insurance policy ownership.
“Baby boomers used to be the largest generation and they are not buying life insurance,” Ms. Baranoff said. “Their kids are older. They don’t have a need. They are not buying insurance for their kids. Actually the kids may be earning more than the parents.
“Millennials don’t have a need yet if they don’t have a family. All they need is what the employer provides for burial expenses.”
While getting life insurance coverage through a group policy at work is the easiest and cheapest way for workers to protect their family, there are some disadvantages.
Workplace policies offer only a limited amount of coverage, and the employee may need a higher amount to meet a family’s needs. Also, the group policy is only good for as long as the worker stays with the same employer.
Ms. Potter said trends in the insurance industry suggest the number of Americans covered by employment-based life insurance will continue to grow gradually.
According to a 2016 LIMRA report, industrywide sales of individual life insurance are down 45 percent since the mid-1980s, and 30 percent of American households in 2010 had no life insurance at all, up from 22 percent six years prior.
“Family formation is being put off to later years,” Ms. Potter said. “Historically, people bought retail life insurance policies on top of company policies because they had families they needed to cover.”