Who needs to buy life in­sur­ance? Doesn’t it come with the job?

Pittsburgh Post-Gazette - - Business & Region - TIM GRANT

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.”

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