The concept is simple, and for David Wiggins of Worksite Benefit Associates, it works: Spread the word that voluntary permanent life insurance offers employees a way to pre-fund a post-retirement life insurance policy, one that won't disappear if their job does. "We've always found a pretty good interest in it as far as employee participation," says Wiggins, owner and president of the Kansas City, Mo., enrollment and communications firm.

Especially these days, as the commonplace portable group life benefits of the 1980s are now few and far between. "The combination of the expense and the way they had to account for the expense really forced most employers to get rid of the benefit in general," says Lockton EVP Rich Reda. "We just don't see [group permanent life] very often here in 2010; in the mid-'80s it was very, very common."

But among voluntary benefit offerings now, "it ranks pretty high," he says, likening the need for permanent life to that of disability insurance. "Both cause the same financial impact," he explains. "The question is: Are you surviving or are you not?"

The Life and Health Insurance Foundation for Education is seeing "a lot of movement" in the voluntary benefits arena as a whole, but particularly from permanent life, disability and long-term care, according to Marvin Feldman, president and CEO of LIFE. "The permanent life insurance is becoming a much more important factor in voluntary benefits than it was even just a few years ago," he says. "Especially as a result of what's happening in the marketplace as far as the overall economy."

Feldman references recent LIMRA statistics that life insurance products in the voluntary market accounted for around $700 million in premium for the past year. "I think it will continue to be a growing benefit as employers continue to look for ways to keep the employees happy while reducing their out-of-pocket costs."

With life insurance in particular, it's important to be available to answer any questions employees may have about the product. LIFE's Web site, lifehappens.org, contains a large amount of educational material on the products available. "It's important for the agents to be involved and for the employers to make sure that they've got good people to turn to [who will] provide the advice and educational resources that employees need," says Feldman, adding that the foundation is in the process of converting their educational materials to gear them specifically for the worksite market. (For more about LIFE and Feldman, see this month's "Movers and Shakers" column on page 64.)

The best of both worlds

Most employees do not understand the limitations of their group term life insurance, says Lockton's Reda, particularly the fact that it is contingent upon their employment. Compounding the need for permanent life insurance is the fact that tenure has dropped significantly over the years. "Tenures used to be 10 years-plus on average and now, if you believe the stats, we're at between three and four years average tenure per job," says Reda. "That's no way to have a financial plan around life insurance. You need to have something that you can take with you that is not contingent upon your employment or retirement."

Perhaps the biggest obstacle holding some employees back from purchasing permanent life insurance is the higher premiums associated with it. Why bother when term life is cheaper?

Understanding this attitude, both Reda and Wiggins design plans where term and perm can coexist. While premiums for term life may be downright cheap for an employee in their twenties or thirties, they take a steep climb throughout the employee's forties and fifties.

"It starts getting really, really expensive, so obviously most peoples' term life insurance ends when you're [around] 70, or if you have it through work, when you retire," says Wiggins. "But a lot of people have already gotten rid of it by that time because the premiums are so high."

Conversely, "if you plot the premium of a whole-life policy on a grid, it's level from left to right," he points out. "It never goes up. So at some point in time those lines cross."

As an alternative to a $100,000 term life policy for a 30-year-old, Wiggins would recommend $50,000 in term and $50,000 in permanent. "That's how I'm set up," he says. "I have a chunk of term life insurance while my kids are growing up to protect them. But I also have whole life. And I know at some point I'm going to get rid of my term life because it's going to get expensive or it's going to end, but I'll keep my whole life so I have some life insurance for when I die."

When evaluating an employee's needs, it's the agent's role to help determine a unique solution that fits their particular circumstances, says LIFE's Feldman. "In other words, what do they need to pay, what are they willing to pay? Once that's done, if it's convertible term you can always go back and work with that individual over the next three, five, 10 years and convert chunks of it to permanent."

It's about evaluating the level of need for income replacement over time. As a 38-year-old father of five, Reda has a high need for large amounts of inexpensive term life insurance now, should he pass away before his children attend college or get married, he explains. However, in 20 years, "if I've done my job saving and we've moved these children through college and into their own economic world, I won't need the level of life insurance, in theory, that I need today from a term basis," he says. "But there is no question that I will need some level of [permanent] life insurance when I pass away for estate liquidity and just to make sure that there is some level of death benefit to deal with estate taxes or any estate planning issues that I have."

Thinking long term

One way to make the higher premiums of permanent life worth the expense for employees is to combine it with a benefit that will pay out while they're still alive.

"A lot of times we'll include a long-term care rider or benefit as an additional offering or embedded in the policy where they can access some of the death benefit if they're in a long-term care situation, which is of interest to a lot of people," says Wiggins.

According to Wiggins, these days, there's more creativity on the part of insurance companies in setting up long-term care benefits. For example, a $50,000 death benefit with an LTC rider will usually pay 4% to 6% of the death benefit on a monthly basis, he says. Other options included setting up the plan so that it doesn't reduce the death benefit but rather provides an additional pool of money on top of the death benefit.

"We see a lot of policies that have long-term care components to them," says Reda. "Depending on the severity of the disability, if you're confined to a nursing home typically it's 4% of your face amount per month; if you're in assisted living or something less severe, it's 2%."

Reda admits it's a "more marketable, more digestible way" to buy LTC coverage, but cautions that such riders should not be considered true LTC because the actual cost of care is likely to be higher than an LTC rider would pay out. "Consequently, we tend to favor if you want to buy long-term care insurance, buy long-term care insurance," he says. "Don't necessarily add weight to a life insurance policy."

Still, the popularity of such combination policies is likely to rise, thanks in part to publicity from the Community Living Assistance Services and Supports Act. "Long-term care is an area that's going to become even more important," says Feldman.

While the CLASS Act will raise awareness of LTC, "what most people don't know is that the waiting period is so long that by the time the benefits are payable you're probably already dead," he adds.

"Having the ability to do long-term care in conjunction with some type of voluntary benefit, whether it's individual long-term care or as a rider for an existing policy, I think those are things that will become more important, especially as the individuals become more aware and better educated as to what's required in long-term care," Feldman predicts. "You're going to see more and more of this."

Tune into eba.benefitnews.com/podcasts for a close look at the CLASS Act with Univita Health