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Benefits Products & Services

A benefit product for every season of life

Voluntary permanent life serves a need beyond retirement

"Benefits brokers have a responsibility to make sure employees understand that the term life they have is temporary. They need to plan for their permanent life insurance needs, and the best place to do that is at work." —Steve Worley Vice President, Sales and Marketing Texas Life Insurance Company

By Thomas A. McCoy, CLU

Employees are taking on more responsibility for choosing and paying for their benefits at work. All the choices can be daunting for employees who for years just took what their employers gave them. Now they must give serious thought to matching their voluntary benefit options to their family's individual needs.The person in the next cubicle, even at the same age and salary, might have totally different needs.

Just as brokers help employers arrange retirement products to help employees deal with an event that may be decades in the future, they can add another product to the benefits menu that will continue to serve its purpose long after employees have left their current employer. Unlike a retirement plan, however, the product's usefulness begins immediately, and the employee can take it to a new job or into retirement. The product is permanent life insurance.

It's particularly important after retirement. With most benefits products, it doesn't matter that when employees retire, they lose access to their former employer's benefits menu. Some products, such as disability income, will no longer be needed. Medicare and its supplements can take the place of group health coverage. However, when it comes to replacing the term life insurance provided through a benefits plan, it's a different story.

Steve Worley, vice president of sales and marketing for Texas Life, one of the leading carriers in the voluntary permanent life market, says, "Benefits brokers, employers and insurance companies have a responsibility to make sure employees understand that the term life they have is temporary. They need to plan for their permanent life insurance needs, and the best place to do that is at work."

Voluntary permanent life insurance is the only product Texas Life sells through its independent broker distribution network. The company is licensed in 49 states and rated A by A.M. Best. It was founded in 1901, making it the oldest insurer domiciled in Texas. From 1988 until 2009 it was owned by MetLife, with which it still maintains a marketing relationship for some other products.

"Most benefits brokers address the life insurance need in a benefits plan by checking the box for group life insurance," says Worley. "They think they've done a good job for the employer and employee. Unfortunately, they never revisit the group contact until a 65-year-old employee retires and wants to port the group policy or convert it to an individual policy. When he sees the premiums, he says, 'I can't afford it.' "

The term to permanent conversion rate for a 65-year-old is about $6 per $1,000 per month—$300 per month for $50,000, he says.

According to the 2012 U.S. Worksite/Voluntary Sales Survey published by Eastbridge Consulting, term life insurance is the most popular voluntary benefit product. But its success masks a problem. The working population increasingly has come to rely on group term or voluntary term life at work for their long-term life insurance needs. According to a 2011 LIMRA study, half the households in the United States are depending exclusively on their term life at work for their life insurance. Yet Texas Life points out that 83% of the population will live past their working years.

The way Worley sees it, the logic of addressing this coverage gap is no different from the way employees look at other retirement risks. "They contribute to 401(k)s to have money after they retire. They contribute to Medicare so they'll be eligible for Medicare after retirement. They pay into Social Security so they'll have a retirement benefit. They try to pay their homes off before they retire.

"If you apply that view to permanent life insurance, and if it were a more mainstream, widely adopted product where the employer felt some responsibility, the chances are good that the employee would set aside money for premiums so the coverage would be available at retirement."

We talked with two benefits brokers who are having good success with the product. Dawson Schnautz, president of First Financial Group of America in Houston, Texas, works extensively with school employee groups throughout seven states; he includes Texas Life's voluntary permanent life as an option. Schnautz first conducts group meetings at the schools and furnishes product information.

"Then we have 10 or 20 minutes to talk with each teacher about their benefits choices. About 30% to 40% of them will purchase the permanent life product," he says. "It's a great complement to the group term policies provided by the schools."

Mike Carlisle of the CarLyn Group in Waco, Texas, reports a 30% adoption rate for the product. "We use Texas Life's product as a door opener for group business. There aren't a lot of companies that offer a stand-alone permanent product," he says.

Worley says that sales of Texas Life's voluntary permanent product do not seem to be strongly correlated with the age of the employee. Most affirming, perhaps, once employees have purchased the product, the insurer's retention rate for employers who renew the plan each year is around 90%.

Worley says that further evidence of the product's acceptance is the significant number of individuals with multiple policies on other family members (available with simplified underwriting). "For each employee with a payroll deduction for the product, we are writing an average of one and a half policies," he says. Sometimes these purchases on other family members come during a later enrollment, he notes.

He points out that the benefits departments of commercial property/casualty brokers are in an ideal position to bring voluntary permanent life insurance to their clients. "They have strong relationships with their clients' management, and they also have a good understanding of consumer needs."

And for Texas Life, voluntary permanent life is all about the consumer—providing a product for the long term that addresses a major risk—one that, unfortunately, too many consumers don't discover until it is too late to do anything about it. 

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