Brokers and advisers know better than anyone that life insurance has long been considered a keystone of a well thought-out family financial plan. Without sufficient life insurance in place, the unexpected death of a head of a household can be economically devastating for a surviving spouse and other dependents.

Yet according to MetLife’s Study of the Financial Impact of Premature Death (2009), which analyzed the financial impact on a surviving spouse when the paychecks of a departed breadwinner suddenly vanish, 43% of beneficiaries received less than $50,000 of life insurance proceeds following the death of a spouse, and 84% received life insurance proceeds that were less than three times the employee’s salary. More than three-quarters of beneficiaries considered these proceeds inadequate.

The fallout from underinsurance can be just as serious as having no life insurance, according to the MetLife study. Without enough in savings to fill the gap, possible consequences range from an inability to make debt payments to the need to borrow from family or friends, and even having to sell the family home or file for personal bankruptcy.

Financial fragility

The financial impact from the premature death of a spouse can be long-lasting. Of the 1,000 surviving spouses surveyed for the MetLife study, more than a third said that they felt financially fragile up to seven years following the loss of a husband or wife.

“To make sure that those loved ones can survive at a reasonable standard of living there really needs to be an adequate amount of life insurance,” says Graham Cox, MetLife vice president for Group Life Products. “It’s all about having enough replacement income.”

There is no hard and fast rule on what constitutes enough life insurance. “Every individual will have unique needs depending on their personal situation and who is relying on their income today,” says Cox. “But we believe that three times household income is a good starting point.”

Broker and advisers can reinforce with their clients that for diverse reasons, many individuals balk when it comes to assessing their life insurance coverage. Some feel overwhelmed by perceived complexities. Others avoid the topic because it’s too unpleasant. And many say they simply don’t have enough information to make a decision.

Basic misconceptions also feed the inertia. One is that life insurance is too expensive to purchase when, in fact, group coverage at the workplace can be very affordable. Another is the willingness by many employees to embrace employer-paid life insurance benefits as sufficient. “What they don’t recognize is that those employer-paid programs are meant to be a jumping-off point,” asserts Cox.

For brokers and advisers there is an opportunity to assist employers in optimizing their supplemental life insurance programs. According to the MetLife study, 80% of employees with life insurance coverage obtain it through their employer. That makes the workplace a good focal point for addressing the problem of underinsurance. To make real headway requires both employees and employers to do their part, especially as supplemental life insurance programs become increasingly important for employees to adequately protect themselves and their families.

The three Es

Steps for employers to implement can be encapsulated in three Es: evaluation, enhancement and education. Evaluation, the first step, requires a periodic survey of how the plan in place for employees is working: who is participating, and who is not, and are coverage levels related to specific demographics? Enhancement of an existing workplace life insurance plan with more compelling features and services, the second step, may be needed to increase participation.

The third, and maybe most essential step, is to better educate employees and promote the importance of having enough life insurance. Cox suggests that brokers and advisers urge their employer clients not to rely on generic messages, but rather communicate with employees using a more personalized approach. MetLife is well-equipped to assist both brokers and employers with ample informational resources and tools to improve benefits communications and, in turn, employee participation.

“Even if they are looking to reduce their costs, and many employers in this day and age are focused on constraining the rising cost of benefits,” Cox observes, “they can really do a service to their employees by periodically evaluating the company life insurance plan, enhancing the benefits package where necessary to make it more compelling, and educating employees on why it is so important not be underinsured.”

For more information on the consequences of inadequate life insurance coverage from the beneficiary’s perspective and the significant role brokers and employers can play in helping employees close the underinsured gap, visit metlife.com/broker/supplementallife.

Metropolitan Life Insurance Company New York, NY 10166 L0710117181[exp0711] [All States]