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Closing the Life Insurance Coverage Gap

By SHRM Online Staff  4/6/2010
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More than half of the widows and widowers in the U.S. who collected life insurance proceeds received an amount less than one year of their household income, according to a study report by insurance provider MetLife, Three Steps to Closing the Underinsured Gap: Evaluate, Enhance and Educate.

While more than half of surviving spouses who received three or more years of income in benefits felt financially secure the year following their loss, fewer than one-third of those who received lesser amounts felt financially secure. Only 11 percent of widows and widowers who received no life insurance benefits felt financially secure the following year, the study found.

MetLife looked at demographic differences and found that women participate in group life insurance programs at lower rates than their male counterparts. Working women with life insurance coverage generally have only about two years’ worth of their salary whereas working men have about three years’ worth. These amounts are considered insufficient in most cases, regardless of gender, according to Metlife.

“Life insurance is essential income replacement; not only does it cover day-to-day living expenses for survivors, but it helps secure a future financial plan, including having a comfortable retirement,” comments Cindy Hounsell, president of the not-for-profit Women’s Institute for a Secure Retirement (WISER). “Making it easier for working Americans to understand their needs and obtain appropriate amounts from supplemental life insurance plans through the workplace will go a long way toward helping more families avoid financial hardship.”

Tips for Employers

“More than half of working Americans look to the workplace for their financial protection products," says Graham Cox, vice president for group life products at MetLife. "Targeted communications, educational tools and access to supplemental amounts of coverage through the workplace—even when 100 percent employee-paid—can encourage employees to obtain the right amount of coverage for their personal needs.”

The study report offers additional tips for employers to provide the most value from their group benefits and help close the underinsured gap, including:

Determine the extent to which employees are underinsured by conducting an analysis of participation and coverage levels.

Provide a comprehensive life insurance program that features term and permanent coverage options to meet multiple needs.

Gain an understanding of key demographic differences among the workforce and address them as part of any educational and communication outreach.

Remind employees that certain life events might trigger the need to take action to reevaluate coverage levels. 

Provide access to decision-support tools and educational materials, such as online income-assessment calculators and tutorials.

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