Now that businesses have cut back on employee benefits due to the recession, there are many insurance gaps to fill. Many companies are adding voluntary supplemental benefits, such as accident and disability, hospital and sickness indemnity, cancer indemnity, long-term care, life insurance, dental insurance and vision coverage to their plans. Employees typically foot the entire bill, and can opt to have as little as $10 to $50 automatically deducted monthly from pay checks, based on the types of coverage they select.
“I’m seeing a lot of interest in supplemental insurance,” says Kevin Gazda, vice president of employee benefits with Longfellow Benefits. “In this economy, companies are cutting benefits and raising deductibles.”
Sales of all supplemental insurance were up an average of 7 percent for the first two quarters of 2009 versus the same period last year. The biggest gainer was supplemental life insurance, which grew 16 percent over the period. The smallest gainer: Supplemental health insurance, which saw a sales increase around 2 percent. Results are based on a survey of 34 insurance companies by LIMRA, the life insurance and market research association.
Supplemental term life insurance and dental insurance posted sales gains of 26 percent and 9 percent, respectively, for the year through June versus the same period in 2008. But long-term care supplemental coverage saw a 28 percent sales decline. Karen Riedel, Aflac second vice president, says that the most popular types of voluntary supplemental insurance coverage purchased by employees are life insurance, disability and dental insurance.
Term life insurance is typically purchased for extra coverage because, contrary to life insurance offered through an employe, it is portable. Similarly, company disability insurance covers only about two-thirds of an employee’s income. So supplemental disability typically is purchased to close the gap.
Next in line: Sales of critical illness, accident, and cancer and hospital indemnity insurance. Riedel says these supplemental lines help employees pay expenses not covered by standard medical insurance, such a private nursing, rehabilitation, inpatient and outpatient expenses, child care and prescription drugs. In addition, the insurance payouts help cover a family’s basic living expenses.
“A Consumers Union study in 2009 found that illness, injury and medical expenses are a major contributor to bankruptcy,” Riedel says. “Basic health insurance does a good job of paying doctors and hospitals. The critical illness, cancer, accident and supplemental health help cover living expenses, like car payments and house payments.
Supplemental insurance is a niche market made up of middle income wage earners who can afford to pay a few bucks out of their pay checks weekly for additional coverage. Aflac’s average insured is 40 years old and makes $61,000 annually. Slightly more females purchase the coverage than males because they usually pay the family’s bills.
Typically, higher-paid salaried employees and executives have money to cover their deductibles and do not purchase the insurance. The commission for selling supplemental insurance to a business is more than 50 percent in the first year, depending on the insurance company, products selected and the company size. The commissions are split between the broker and an enrollment firm, which is responsible for meeting with the company employees to explain the benefits.
Kevin Gazda, vice president of employee benefits with Longfellow Benefits says the marketplace is changing. In the past, companies with hourly workers in manufacturing, hospitals and nursing homes offered voluntary supplemental coverage for life insurance, short-term disability and accident or critical illness. Today, he is seeing more interest from other types of companies with more upscale employees.
“In this society, people making good money, like $80,000 a year, still live from paycheck to paycheck,” Gazda says. “The (supplemental insurance) business is moving up from the blue collar market.”
Even highly paid workers with a health savings account might have $10,000 to $15,000 in out of pocket expenses for a critical illness or accident. Or they may want some short-term disability coverage. For example, he says that higher paid employees that commute in highly congested urban areas may be willing to pay $300 a year for accident-disability supplemental insurance coverage. Meanwhile, older workers with a family history of heart disease or cancer are interested in critical illness and cancer coverage.
Besides Aflac, there are number of insurance companies with supplemental insurance products on the shelf, including ING, Trustmark and UNUM. When considering insurance companies that underwrite supplemental insurance at the workplace, it’s important to review their A.M. Best and Standard & Poor’s financial strength ratings. It also is important to consider how many must sign up for the plan before the insurer will offer coverage, as well as the amount of “guaranteed issue coverage,” or coverage that requires no medical underwriting. Unfortunately, most guaranteed issue policies, which are designed for a specific purpose, have small face values.
“Some companies may offer critical illness insurance with a guaranteed issue of $5,000, but others may do $10, 000,” says Gazda of Longfellow Benefits. “You have to look at the cost of the plan and how easy it is for someone to enroll.”
