Your Benefits Package: The Missing Piece

In California, Dan’s least favorite time of the year is quickly approaching. Despite running a successful electric company, every year around the holidays he starts to get employee notices. At least 5% of his staff will quit, and it is always the same story…A desire to gain access to the retirement savings that had accrued over the past year. His employees want some extra spending money, but for Dan it means the hassle of hiring new employees and lots of paperwork.

In Ohio, Robert, the owner of a successful paving company is growing weary and getting anxious. At 63 years old, he has been living with diabetes for 20 years and his health is starting to decline. He is worried about creating a legacy for his family. Robert has two kids in college and a wife who has supported him for most of his career. He wants to make sure they are taken care of in the event of his passing, but he is at a loss for how to do it. Individual life insurance policies that he has found had all become prohibitively expensive. Robert has term insurance, but the term is about to expire and converting it to an individual policy also costs too much. Plus, he can’t find any new carrier that would underwrite him given his current condition.

In Georgia, it is Monday at 10:00 AM, and Sarah is already exhausted. As the HR Administrator of a construction company, it is her job to hire builders. Her company has just won a bid for a big government building, and now the pressure is on to staff up…and she can’t find anyone! All the best laborers are already working for their competitors and no one wants to switch. She knows she can’t afford to increase pay because margins are so thin, but she needs to figure something out.

Many leaders don’t see employee benefits as a way to solve strategic business challenges, but the fact is that oftentimes employee benefits can be one of the most effective and affordable ways to enhance your business. In fact, the problems facing Dan, Robert, and Sarah are vastly different, but they all highlight a common gap in many contractors’ benefits plans – Group Whole Life Insurance.

This article is aimed to provide a deep dive into the ‘missing piece’ of your financial security – Group Whole Life Insurance, and how to use group whole life insurance to achieve your strategic business objectives, as well as your own personal financial planning needs.

Establishing Financial Security for You and Your Workers

Financial security is something that every American strives for.  The Covid pandemic is just the most recent example of how fragile and fleeting financial security can be, and the memory of it reinforces our need to be prepared and plan ahead. Experts believe that a solid foundation for financial security comes from planning for retirement, living in retirement, paying for education, and preparing for the unexpected, so that you can provide financial security to your loved ones and create a legacy. These core elements complement one another and work together to create holistic security for individuals and their families and serve as the foundation upon which financial security is built.

Financial security for your employees is a strategic imperative and helps improve the bottom line. We know that personal finances are the leading cause of stress¹, and we also know that stress can make people up to 16% less productive at their job². For an employee who earns $50,000 annually, a drop of 16% in productivity equates to $8,000 in wages for which your company may not have received value.

For decades now, the conversation around financial security has centered on retirement (including healthcare) and education. Most people understand the importance of saving for retirement, whether it is through an employer sponsored 401(k), an IRA, or some other investment vehicle. Similarly, the battle over healthcare has spanned a generation and several presidencies and continues to be a hot-button issue. Affordable education is the latest economic debate and 529 qualified tuition savings plans have become very popular as a result.

It is the last piece, however, that has received relatively little attention and is equally as important as the other foundational elements: Group Whole Life Insurance. Planning for the unexpected is a core tenant of financial security and permanent whole life insurance is a prime tool for getting there. Millions of Americans don’t understand life insurance, and don’t understand its role in providing financial security. For many, the only life insurance they ever receive is term life insurance from an employer. However, term life insurance by its very definition is limited to a certain period. It only provides protection for a specified “term” and therefore serves as only a piece of a much bigger puzzle for how to plan for the unthinkable.

The Limitations of Term Life Insurance

Benjamin Franklin once wrote, “In this world nothing can be certain except death and taxes.” While taxes may be predictable, figuring out the timing of the former may be a bit more complicated – and that is exactly the challenge with term life insurance – timing is everything. With term life insurance, you are protected for a certain term, and if you die prematurely during that time, your beneficiaries receive a payout. By its nature, term life is temporary…and therefore provides a temporary solution to a permanent problem.

While term life is an important piece of the comprehensive benefits package, it often leaves individuals with a false sense of security and open to risk. It may expire or become cost prohibitive when a person still needs coverage. If the “term” on your life insurance policy ends, you are no longer protected, and your family will suffer the financial consequences. When provided as a benefit, this is typically the duration of your employment. When a worker leaves, their life insurance policy may evaporate and employees who think they are protected suddenly have lost their safety net. In fact, 4 in 10 insured husbands and wives have only group term insurance with no personally owned life insurance³.This puts them and their families at great risk after the inevitable loss of their group life benefit, and as a result less than 2% of term insurance policies ever result in a death benefit payout⁴.

Term insurance is also singularly focused in its intent and value; there is a payout in the event of death during the term. But the policy itself does not possess or accumulate any cash value, and the death benefit does not increase over time. In addition to being temporary, the policy is also static.

How do you plan for the unexpected when the unexpected must happen during a specific time period? That is why a group whole life policy is the benefit that you and your workers are missing in order to achieve financial security.

How Group Whole Life Insurance Works and Why It’s Unique

Whole life insurance is the most well-known type of permanent life insurance. Just as the name suggests, it is a policy meant to provide lifelong coverage, regardless of age, affliction, or employment status. Similar to term life insurance, whole life will provide a death benefit in the event of premature death. Where whole life starts to come alive is in its added benefits, flexibility, and certainty.

Whole life is a dynamic solution that offers much more than a death benefit. Whole life insurance includes a cash accumulation component known as the policy’s cash value. The cash value is guaranteed to accumulate value over time and accumulates in a tax deferred manner. This is a source of wealth that is available to policy holders as it accumulates. Individuals can take out loans against their policy. Additionally, some insurance company group whole life policies are eligible for dividends – which can be granted in the form of cash, used to pay back loans, lower premiums, deposited to earn interest, or even used to increase your death benefit to help you keep up with inflation.

While term life insurance has its limitations, whole life offers several guarantees: Guaranteed premiums for as long as you live, guaranteed death benefit, and a guaranteed cash value account growth.

Whole life insurance is much more than a death benefit. It is a reliable and consistent financial vehicle that is guaranteed to protect individuals and their families over the course of a lifetime and beyond. It is the permanent life insurance instrument that will allow you to prepare for the unexpected and create a legacy for your loved ones.

Group Whole Life Specifically for Contractors

The construction industry and those who work within it are constantly faced with financial risk. Future work is never guaranteed, margins are low, saving for the future is difficult, and accidents are always a threat.

Planning for the unthinkable and starting to think about a legacy for your family is so critical because construction is a dangerous business. In fact, construction accounts for only 4% of workers but 21% of all worker deaths⁵. This is one of the many reasons that contractors traditionally have more difficulty getting life insurance.

While individual whole life insurance has been available for some time, group whole life policies for employees are relatively new. In 2017 the insurance industry realized the need faced by laborers and created the first ever group whole life product that is geared specifically toward contractors, one that accounts for their unique needs and circumstances. For example, it is the very first group whole life product to qualify as a bona fide employee benefit capable of accepting fringe dollars for Service Contract Act and Davis Bacon contractors. And for a work force that is inherently seasonal and has typically more transient than average workers, this solution allows for hour banking and is issued to the employee, both of which ensure long-term financial security. And perhaps most importantly, it is a policy which guarantees underwriting so no matter the occupation, age, or health of a contractor they would automatically qualify.

This is a group of people for which financial security isn’t a ‘nice to have,’ but rather a dire necessity, and this group whole life solution is the essential missing piece of that secure and prosperous future.

Why it Matters

Providing group whole life insurance isn’t only about protecting yourself and your workers, it’s also about doing what’s right for your business. The ability to attract and retain top talent in the contractor space is one of the most pressing challenges of business owners today. Nearly 70% of U.S. workers believe having a life insurance benefit at work is important⁶, and workers who are very or extremely satisfied with their benefits are nine times more likely to stay with their employer⁷. Expanding your benefits plan is an easy and relatively low cost way to differentiate yourself in the market, and to keep key employees happy and engaged.

In the construction industry, the numbers are staggering. 41% of construction workers are struggling financially⁸. These struggling workers take 25% more in sick days, and twice as likely to say they feel distracted at work⁹. Today, workers in the construction industry aren’t able to bring their all to work. It affects their colleagues, their work product, their health, and the overall profitability of the business. What if solving these issues was as simple as expanding your benefits package?

And what about Dan, Robert, and Sarah? How could their challenges be solved with this group whole life solution? Dan may be able to significantly reduce employee turnover and attrition. Instead of his workers quitting around the holidays to force an early 401(k) distribution, they would be able to take a loan out against their whole life policy. A loan with no early distribution penalty that could be repaid through dividends, or not repaid at all, simply deducted from their death benefit. Dan’s employees would have the financial flexibility they need to access savings without having to quit their jobs, and Dan’s holidays would be much less stressful without the threat of losing 5% of his workforce.

Robert, who is in declining health due to his diabetes can’t afford individual insurance, and he’s worried about leaving his family in a lurch. Because of guaranteed underwriting he would automatically qualify for whole life insurance through an employee benefits package – giving him and his family financial protection in the event of the unthinkable. And because group whole life is issued to the individual and portable, Robert would be able to take the policy with him when he retires, so that he can spend more time with his family, while still providing them with a prosperous future.

As for Sarah and her recruiting efforts, a group whole life solution would be a huge differentiator in the marketplace. This is a valued benefit that would fundamentally change the hiring conversation. She would be able to tout their benefits as a huge bonus for individuals wanting to work towards financial security, or explain how this will help them protect their family as they get older.

65% of employees believe they need more from a death benefit¹⁰, and 40% of insured employees only have group term life insurance with no individual coverage at all¹¹. The market is asking for permanent life insurance and contractors need permanent life insurance. If an employee’s financial security were a house, the main support beams would be a plan for retirement, healthcare, education planning, and a plan for the unexpected or unthinkable. Employers today have done a good job of installing and maintaining the structural support of many of these structural beams, retirement and medical insurance, financial wellness and savings accounts – but the house is still missing a beam. As builders, we know it doesn’t matter how strong some of the beams are, the house is not structurally sound without a plan for the unexpected, a way to leave a legacy. Permanent life insurance is the missing beam and it’s time as builders we finish the job, build a stable foundation, and create financial security for ourselves and our workers.

Sources:

¹ Manulife/Ipsos Reid Health and Wellness Study 2014

² Manulife/Ipsos Reid Health and Wellness Study 2014

³ LIMRA

⁴ The Jordan Insurance Group 2016

⁵ https://www.bls.gov/iif/oshwc/cfoi/cfch0014.pdf

⁶ LIMRA, Life Insurance Awareness Month Fact Sheet, September 2015

⁷ 2012 Aflac WorkForces Report

⁸ Manulife/Ipsos Reid Health and Wellness Study 2014

⁹ Manulife/Ipsos Reid Health and Wellness Study 2014

¹⁰ LIMRA, Life Insurance Awareness Month Fact Sheet, September 2015

¹¹ 2015 Insurance Barometer Study