Under funded retirement plans -- No death benefit

[Guest Insuror]

Although this may not seem like a retirement related question, it goes to the heart of the long term problem:

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Why do employers continue to provide a coverage that is not a benefit to all but 8 tenths of 1 percent of a group?

Group term life insurance does not work. It does not accomplish the goal of being a benefit. It is a lottery ticket, at best, for someones benefiary.

The reason group life does not work is because no consideration was made for the fact that people are living to be 80+ years of age. When the first group term coverage was written in 1911 the average at death was 49 years old. By 1940 the average was 65. Today, the price of term goes down, but so does likelihood of a benefit being payable when it is truly needed. According to LIMRA, there are 38 million households who do not have life insurance. I would assume this does not take into account coverage through an employer, but again, that isn't much.

Employers/Employess can get Group Universal Life that provides death benefit only or allows for cash accumulation and paid-up coverage, for less than 10% more than group term.

Why is there such a resistance to change?

[david rigby]

Are you trying to sell universal life? If so, you have come to the wrong venue!

Group term life is a (usually) a very efficient method of providing coverage to EEs who are still employed.

You state, "Today, the price of term goes down, but so does likelihood of a benefit being payable when it is truly needed." The last part of your statement is the reason for the first part of your statement. (Duh.)

The answer to your last question is multi-faceted, but the short response is: money, and no need to change. Employers usually don't consider it their job to provide cash value insurance or paid up coverage, so why should they pay a cent more

Does that make sense?

[Larry M]

Your question is a puzzling one - as is your use of data.

Group term life is a benefit which the employer provides to replace a portion of the income which the family loses when the employee dies.

Its price follows the risk - as the probability of an employee dying decreases, so does the premium.

For each of us, this is an event which will happen. the employer is insuring against it happening while the employee is working.

Your claim that Group Universal Life costs only 10% more than group term is a rather ingenuous statement. By its nature, group universal life can cost almost anything in excess of the term death benefit. The additional cost going into higher insurance company administrative and marketing costs, added cash values and the like.

A better question is "why should an employer spend money to have an accumulated cash value in a group plan when the extra money can be put to better use?" - perhaps a qualified retirement plan, a disability income benefit, to help pay for the increase in medical costs, to replace a piece of equipment, to increase salaries, etc.