The first time new parents hold their newborn, the last thing likely on their minds is life insurance. However, right along with diapers, bottles and carseats, adequate life insurance is just as vital to making sure their little one's needs are met, experts advise.

"Becoming a parent is a very important time in employees' lives to be considering their life insurance needs," says Jim Gemus, Prudential's VP of life product management. "It's about protecting the people you love, so it's worth taking some to think about how much you need to be well covered."

David DeGeorge, vice president of MetLife institutional business, says it's easy for employees - particularly euphoric yet sleep-deprived new parents - to gloss over life insurance. "Health care overshadows all, and when it comes to life insurance, no one wants to think about that," he says. But all the same, "life-stage events should be triggers for assessing all insurance needs."
Employers and advisers don't always take a proactive approach to educating employees about their life insurance needs and providing meaningful entry points to increase their coverage, experts observe.

Although health plans have claims data to rely on to know when and how to target new parents, life insurers have it a little tougher. However, says, Gemus, "To the point an employer is willing to share demographic information with us, we can reach out to employees as these types of life events are happening."

As they work with employers to gain access to new parents for communications and education efforts, "employers need to be a neutral and unbiased party," emphasizes Matt Purington, director of life products for Unum. "It's incumbent on insurance companies to get access to employees, hold enrollment meetings and find entry points to get the message across."

While remaining neutral in advising employees, DeGeorge says employers still are a key part of the equation. "I don't think you can underestimate how much employees rely on employers for benefits information."

Seven pounds, 14 ounces, $500,000 in life insurance

Nor can benefit managers underestimate how much employees need that information. According to MetLife, although 75% of new families say having enough money to survive income loss is a main concern, only 50% of employees have life insurance. Of that amount, 45% say they believe their coverage is not enough.

DeGeorge estimates that the median household has 2.8 times salary in life insurance, which experts say is no where near enough. Conventional wisdom holds that most families should have between five and 10 times their annual salary in life insurance to cover final expenses, large debts like mortgages and car loans, large ongoing expenses like health care and child care, and other future costs including education. Most significantly, experts stress that life insurance should help parents cover the income loss.

Most employers offer a basic life insurance benefit of one to two times salary, and some cap the maximum benefit at $50,000, which, Gemus says, "is not sufficient in any situation, let alone one where multiple people are depending on one income." The majority of employers offer supplemental life insurance, "the challenge is getting employees to take advantage of that benefit," he says.

That is what makes targeted communication about life insurance, particularly to new parents, so important, experts say.

Seventy percent of employees cite a high interest in benefits communications tailored to meet their needs, with 73% valuing life-stage information, Prudential finds. Life-stage communication is "certainly an underserved market, and employees recognize they need help," DeGeorge says. "So the important thing is partnering with employers to get them the help they need."

Gemus suggests pairing visual images with targeted content can help bring the message home for new parents. "Photos of young families or of infants get their attention and let them know you're speaking to them. Online videos that share stories of couples where one spouse died suddenly and speak to the importance of life insurance can provide an emotional wake-up call."

Off-cycle enrollment emerging as strategy

Even when life insurance communication is targeted to new parents, the message can get lost during open enrollment. As such, some insurers advocate that employers shift enrollment for life insurance and other voluntary products "off-cycle," separating it from the core benefits enrollment.

Gemus suggests a time in late winter or early spring, after the main open enrollment period is closed. "When given the time, tools and access to think about life insurance, and information is clear and understandable, people act," says DeGeorge. He adds that MetLife has been helping with off-cycle enrollments for "a number of years now, and average participation for life insurance increases 15%," with many in the "prime needs segments," like new parents.

Understandably, asking harried benefits managers to oversee not one but two enrollment cycles could prove daunting. MetLife offers to manage the entire process, however. "We take away the work. We manage the call center, mailings to employees, staff reps onsite, set up a Web site, manage enrollment," DeGeorge explains. "It's much less intensive for employers; we're stepping into their shoes. All we ask in return is their engagement and endorsement."

Financial planning assistance

Further taking the work, not to mention liability, away from employers is financial planners who can aid employees in assessing their life insurance needs accurately.

"Many younger workers rely on their employer to be their personal CFO, particularly when life events happen," says Meridee Maynard, senior vice president of life products for Northwestern Mutual. "Employees need to take a step back and talk to a financial professional about planning, saving and prioritizing.

"Unum's Purington agrees, adding that "a lot of insurance companies are offering financial planning services so along with providing a benefit they can provide expertise."

For employees, there is much to consider beyond how much life insurance they need to buy. "There is a place for both term and whole life insurance," Purington says, "sometimes for the same person.

"With term, you can get higher amounts of coverage for less, but it doesn't have any cash value. Whole life has cash value and a guaranteed death benefit."For single-earner families, new parents still may want to insure the parent that stays at home, Purington points out. "Research has shown a stay-at-home spouse has a value of $120,000 a year for their work in the home."

In addition, he says, new parents may even want to consider insuring their child, "because a whole policy can build cash value and be converted to term when the child reaches adult age, and a term policy can be used to cover final expenses."

Lastly, Purington encourages new parents to think about accidental death and dismemberment coverage, as accidents are the leading cause of death for individuals under age 45, he saysThese considerations can be too much for benefits managers to handle, says Jay Boyle, a financial adviser for John Hancock. "Benefit managers are so overwhelmed with what they need to do day to day, that they just don't have the time to talk with people about these issues."

Northwestern Mutual's Maynard concurs, adding that new parents are just as stretched for time. "The benefits environment today is more complicated than ever, and we all have busy lives - especially new parents. But now that they have a family, it is the time to think seriously about their future financial security."

It's all about the rates, or is it?

Advisers and carriers disagree about the role rates play in life sales. Many advisers and carriers say rates are competitive, so advisers should look deeper to find the right product for their clients.

"The product is treated a lot like a commodity and I think unfairly so," says Michael E. Shunney, senior VP for Sun Life Financial's Employee Benefits Group. Sun Life hopes to jump onto LIMRA's list of the top ten life carriers for 2007 with its addition of Genworth's benefits operations last year. "If you were a company that chose to compete exclusively on price I think that would be a proposition very difficult to have hold up over an extended period of time. It's important to provide benefit advisers and their customers with reasons other than just rate to choose a group insurance company and we've certainly endeavored to do that."

But have advisers endeavored to look past rates?

"What stands out in life? Rate," says Dave Bommarito, founder The Benefits Group, which is based in Rochester Hill, Mich.
"It's amazing how it changes form carrier to carrier when I quote. One day everybody will be 17, 18, 19, 20 cents (per $1,000 of coverage) and 2 cents or 3 cents on AD&D. Then all of a sudden I get some guy at 13 or 12 cents. Crushes them, crushes everybody. There is no rhyme or reason. A carrier is lousy, lousy, lousy and then bam. Where ... did they come with that rate? It's just so good. It just crushes everybody"

Bommarito concedes he's more fanatical about rates than the average broker, adding that brokers are generally more preoccupied by rates than consultants. Still, he thinks decision-making on group life is focused on rates.
"Maybe someone says they are going to throw in their travel assist or maybe an EAP, [but] it's really [the] rate that drives it usually," he says.

Listen to the rest of Michael Shunney's comments about why a rate-centered approach may not be the best long-term strategy for group life success at Employee Benefit Adviser's Raw Bar, which is located online and accessible by clicking here.