Food for thought – what if your company could offer life insurance that employees could take with them and keep forever, that would never go up in price???? Is that something that you think your company or even your employees would be interested in?
Almost 99% of employers who offer life insurance offer only term life insurance. Why? Because it is very inexpensive and provides a blanket level of protection for all employees. Term life insurance is great and very appropriate on the employer paid side, but term life insurance on the optional, employee paid side may not be the best long term approach.
Another option that one could argue might be a bit better approach, especially for younger employees, could very well be a voluntary whole life option. Offering this through your company, you still get great discounts compared to someone buying an individual whole life policy, BUT you also get the added advantage of employees being able to lock into an amount and rate long-term that will never go up.
One of the disadvantages of voluntary term life is that once someone leaves, it has to get converted to an individual policy, which will always make the cost of that policy increase for that individual. Gone are the deeply discounted rates that they were used to when they were with their former employer.
Now, don’t get me wrong, any life insurance is better than none, that’s not the point we are trying to make. I mainly want to highlight the value of whole life insurance when offered as an employee benefit to your staff. That’s not a topic we’ve really ever highlighted before, so we wanted to dive into that a little more and get everyone’s wheels turning (hopefully). 😊
Let’s take a look at the major differences between term and whole-life policies and then we’ll talk a little more about situations where whole-life policies could add a lot of value.
Understanding the Differences Between Term Life and Whole Life Insurance
Term life insurance is designed to provide coverage for a specific period, or “term,” such as 10, 20, or 30 years. Here are some key characteristics:
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Coverage Duration: Term life insurance offers coverage for a set period. If the policyholder passes away during this term, the beneficiaries receive the death benefit. If the term expires and the policyholder is still alive, the coverage ends unless the policy is renewed.
In the group environment, the term is the employee’s active employment. Once they are no longer employed and benefits eligible, the insurance goes away unless they port or convert it and take it with them.
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Cost: Term-life policies are generally more affordable than whole-life policies. Premiums are fixed for the duration of the term, making it a cost-effective option for those seeking temporary coverage.
In the group environment, you typically have contracts that renew annually. As mentioned, term life insurance is one of the most affordable benefits an employer can provide. In most cases, this benefit is 100% paid by the company.
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No Cash Value: Unlike whole life insurance, term life policies do not accumulate cash value. They are purely designed to provide a death benefit
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Renewability and Convertibility: Many term life policies offer the option to renew the policy at the end of the term or convert it to a whole life policy. However, renewal premiums may be higher due to the policyholder’s increased age.
This is what typically happens on an individual policy, but as mentioned, when the term expires for an employee (they no longer are employed), the policy would need to be converted to a more expensive individual policy if the former employee wanted to keep it.
***Please note, for someone who has developed any health issues or who has had a policy in place for a long time and is leaving an employer’s plan, converting a term plan is still probably a good idea. You are going to be approved already, so no underwriting. In some instances, this might be the only way a person can keep or get any type of life insurance so this is a very important option that everyone should be aware of.***
Whole life insurance provides coverage for the policyholder’s entire lifetime, as long as premiums are paid. Here are its main features:
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Lifetime Coverage: Whole life insurance guarantees coverage for the policyholder’s entire life. The death benefit is paid out regardless of when the policyholder passes away
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Cost: Whole-life policies are typically more expensive than term-life policies. Premiums are higher but remain level throughout the policyholder’s life. This is what I was mentioning earlier in the article, if offering a group-sponsored whole-life policy, each employee’s rates would vary based on their age and the amount of insurance they wanted to purchase, but their costs would NEVER increase. This is extremely valuable for employees who are looking for stability and the ability of a long term plan.
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Cash Value: One of the significant advantages of whole life insurance is its cash value component. A portion of the premiums paid accumulates as cash value, which grows over time on a tax-deferred basis. Policyholders can borrow against this cash value or withdraw it, although doing so may reduce the death benefit
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Dividends: Some whole life policies pay dividends, which can be used to purchase additional coverage, reduce premiums, or be taken as cash. Dividends are not guaranteed and depend on the insurer’s financial performance
Choosing the Right Policy
The choice between term life and whole life insurance depends on the individual needs of your company and financial goals. Here are some considerations:
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Budget: If affordability is a primary concern, term life insurance may be the better option due to its lower premiums, remember, upon conversion, when employees leave, those premiums will increase.
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Long-Term Planning: If you are in a white or gray collar industry and you have a financially mature employee base, whole life insurance may be the better choice. Long term these plans provide a lot more value and the rates are locked in day 1.
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Flexibility: In the group space, if your company is paying for a term policy, you can offer the employees the option of an additional employee paid-up term policy OR whole life policy. This is ultimately giving your employees the choice to decide. This can be a huge differentiator for your company compared to others. Few give their staff the option of whole-life policies.
To wrap things up, hoping we’re giving some additional insights into not only the most common type of life insurance that’s available in the group space but hopefully also a potentially exciting, different option that could help your company further differentiate itself from your competitors by getting creative with some of your offerings.
As always, thanks so much for the read. We appreciate you all and if you’d like to discuss any of the above or anything else benefits for that matter, please let me know. I LOVE strategizing.
Talk soon,
Ryan
