Welcome to ThreeFlow's benefit breakdown series, where we dive into the details of a coverage and discuss the most recent trends with the help of ThreeFlow's data and benefits experts.
We talked about life insurance with underwriting consultants Allina Verrillo, Jen DeMaria, and Nick Barker. With over eighteen years of combined experience as underwriters, they’re well-versed in life insurance coverage and options.
What is life insurance?
Life insurance is a benefit that provides financial protection for a beneficiary in the event of an employee's passing. Coverage can be employer-paid, employee-paid, or shared.
What provisions are standard in life insurance plans?
The most common provisions are:
Maximum benefit: This is the highest dollar amount the carrier will pay for an individual claim. It’s included in all plans to ensure the policyholder knows the risk they are covering.
ThreeFlow’s data shows that:
- 41% of all groups have between a $10K and $50K max,
- 36% have flat benefits,
- and 50% with an x-salary max have between a 1x and 2x salary.
Age reductions: This provision mitigates the risk of older employees by reducing benefits by a specific percentage. These reductions start when employees reach a certain age, typically 65 or 70.
Guarantee issue: This is the amount of benefit an employee could get without submitting medical evidence of insurability (EOI). This is also known as GI or Non-Medical Max (NMM). For groups on ThreeFlow, the average GI is:
- less than 100 lives: $100K.
- 100-999 lives: $100-150K.
- over 1,000 lives: $150-200K.
Factors that increase GI limits are high salaries, young age, and white-collar demographics. Factors that may decrease GI amounts are older groups and blue-collar occupations.
Waiver of premium: This provision waives the premium for a disabled employee. It may or may not be included.
The criteria for this waiver have three components:
- total disability before a certain age,
- the time spent disabled to qualify, known as the elimination period,
- and the duration of the provision.
For example, an employee must be disabled before age 60 for at least nine consecutive months. Waiver provision ends once the employee has reached age 65.
Portability: This allows employees to take their Life or AD&D coverage with them if employment ends. Retirement is sometimes included as an event in which employees can port, but not always.
How do carriers think about risk when it comes to life insurance?
Life insurance coverage provides benefits to the group as a whole and not individuals. When deciding what benefits a carrier would offer, they often review the spread of risk.
The spread of risk is the span between the highest benefit amount and the average benefit amount. This can be based on a group as a whole or by class. For example, carriers consider younger employees and females as a favorable risk. They also consider the business's location and industry to review risk.
An example of a poor spread of risk is a group looking to offer a $1M max for two employees while the rest of the group gets a flat $10K benefit. In this example, there is too big of a spread between the benefits, and the premium this total volume would generate would not support the risk.
The higher the total volume for a plan, the higher the guaranteed amount due to being able to spread out the risk.
How should a company choose to sponsor its plan?
Building a benefits package is essential in attracting and retaining employees. Most competitive benefit packages in the market will offer an employer-funded life plan. To keep costs low, some employers may choose to share the cost with employees or offer an employer-funded plan coupled with the option to purchase voluntary coverage.
Employer-funded plans are generally 1-3x the average salary or a flat benefit that covers the average earner. Voluntary life typically allows employees to elect either an incremental benefit or a multiple of their earnings benefit with a max of 5x their earnings or $500K.
Having both an employer-funded and employee-funded plan will give the employees the flexibility to purchase amounts over the benefit the employer provides.
How should employers think about covering active employees vs. retirees?
There are times when a group can have retiree coverage. It is best to break out active employees and retirees into separate rates to better manage each population's risk. When they are combined into one rate, the retiree experience has a direct impact on the active employee cost.
It's important to include claims experience on groups over 500 lives so that carriers can base the price on how a case has run.
Want to learn more about ThreeFlow's underwriting consulting capabilities? Request a demo today. And stay tuned for more of our Benefit Breakdown series, where we'll dive into a particular line of coverage and discuss what ThreeFlow's data shows on trends.
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