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At present, more than 782,000 multi-life disability insurance policies are in force, representing more than $1 billion in premiums, LIMRA reports.
Why has multi-life become such a strong economic engine in disability sales? One answer is that employers are looking for ways to be more creative with their employee benefits. Rising health premiums and looming talent shortages are spurring firms to give their benefit plans a 'makeover,' adding value where they can.
Protecting High-Income Workers
Multi-life disability insurance is a voluntary benefits solution to fulfill the needs of workers who can't get adequate income protection from an employer's group long-term disability plan alone. This includes high-income earners; employees who rely on incentive compensation, commission and bonus plans; and even the rank and file. Financial and legal firms are great candidates for adding multi-life to the benefits menu, as are many sales-oriented companies.
What makes multi-life such a good addition to the benefits plan is its ability to pick up where group long-term disability plans leave off. For example, an employer might pay the cost of group long-term disability insurance on behalf of employees. Any benefits paid from that policy, however, are taxable.
According to a Guardian study, Insurance & Behavior: Spotlight on IDI, 66% of consumers were not aware that their workplace disability benefits are often taxable. On the other hand, multi-life disability insurance is intended primarily as an employee-paid policy, so its benefits would be tax-free. Furthermore, it is available at discounted unisex rates, does not require a medical checkup, and it's portable.
This type of insurance helps high-income earners achieve the same level of income protection that many other workers enjoy through group long-term disability insurance alone. The maximum amount of benefits allowed under group long-term disability often falls short of providing 60% of earnings to high-income earners. Add the tax bite to what is covered and an employee can end up receiving far less money than is needed to support his or her lifestyle in the event of disability.
Women, in particular, benefit from multi-life's unisex rates. If a woman buys disability insurance on her own, her rate will be higher than a man's. Not so with multi-life.Additionally, this product offers a great antidote to group LTD rates, which can fluctuate wildly, depending on claims experience. If a highly paid executive becomes disabled one year, an employer can expect group premiums to rise sharply in the next. With multi-life, the individual premium remains level regardless of other factors.
Offering a combination of group and individual policies allows for the transfer of some of the risk from the group to the level premium individual contract. This results in better rate stability over the long term.
The Employer Opportunity
Like most voluntary benefit plans, there is no cost for an employer to offer multi-life disability insurance, unless there's an administrative cost for payroll deduction. Employees typically bear the entire cost of the premium.
Many employers may be easily convinced to add multi-life to the benefits menu, especially since these are guaranteed standard issue plans. All employees qualify, no medical exam is required, and premiums are significantly lower than what an employee could get on his or her own for a similar product.
It is important, however, to build the right multi-life plan, one that meets the needs of a given employee population. Plans are more successful when they're customized to the market. They can be designed for different classes of employees. There's no need to offer unnecessary riders on a policy that employees may not be able to afford.
Whatever plan an employer decides to put in place must be suited to employees' needs. That includes being generally affordable. The best employee benefit in the world is no benefit at all if an employee cannot afford it.
Tips on Employee Education
It's also not a benefit if an employee doesn't understand it. Many enrollment kits have journeyed from the benefits department to the U.S. Postal Service, to Thursday's trash pickup in less than a week. Programs don't enroll themselves. Employees need educational opportunities to help them decide.
When I hold enrollment meetings on disability insurance, I draw a big paycheck on the board and ask employees what they spend it on. People mention the usual things: mortgages, car loans, food, clothing, college savings, and insurance premiums. Then I ask, "What would happen to all of those things if you didn't get that paycheck?"Employees are often astounded to realize that their most valuable asset is the ability to earn a living. When that ability is unprotected, everything is at risk.
Some people mistakenly think that having health insurance is enough to see them through a disability. But health insurance does not help anyone with living expenses. Those who are disabled for an extended time may find themselves facing steep COBRA health insurance premiums. Who will pay for that? Not the employer, not anymore.
Also, it's ironic how attitudes can differ so sharply toward two insurance products that are designed to complement each other. If you ask people whether they really need health insurance, they'll say, "Of course I need it. What if I get sick?" Ask them the same question about disability insurance and you'll hear, "Oh, I don't need that. I'm not going to get sick."
A Remedy for the "Uninsurable"
Yet many people do get sick. Disability will strike nearly one in five Americans for one year or more before they turn 65, according to the LIFE Foundation. Chances of short-term disability are even higher.
Because disability underwriting has become much stricter in recent years, many people no longer qualify for disability insurance. Guaranteed insurability protects against policy exclusions and outright declinations.
Giving workers the opportunity to buy multi-life disability insurance is a good remedy for this situation. Employees qualify for coverage automatically. It doesn't matter if the open market considers them uninsurable. What's more, they can keep their policy if they leave their job for some reason.
As more workers come to understand multi-life disability income protection, they will realize and appreciate the opportunity to participate in a program that is guaranteed and affordable. Most importantly, they will value protecting their most important asset -- their income.
Gina Sacchetillo is the disability specialist and brokerage manager for Strategies for Wealth, an agency of The Guardian Life Insurance Company of America. She has been in the insurance industry for 15 years and holds a master's in marketing from the College of New Rochelle. For the past 10 years, Ms. Sacchetillo has worked with both individual and multi-life disability products.
