Disability

Multi-Life Disability Insurance Offers Value to Employers and Employees Alike
by Michael Hagedorn, CFP, CLU

In a tough economy, employers are scrutinizing their benefit plans to make sure the company and its employees are receiving good value in relation to rising costs. While many firms are scaling back on core offerings, they’re also adding supplemental benefits to meet the varying needs of employees.

One of the most popular worksite benefits to emerge in recent years is multi-life disability income insurance. This product bridges the gap between traditional group long-term disability and individual coverage. It requires no medical underwriting and is available at discounted rates, similar to group offerings. It’s also portable, which is a valuable feature to employees in a time of employment flux.

Over the past several years, multi-life disability insurance has become a strong economic engine in disability sales. In fact, in the first half of 2007, multi-life accounted for about one quarter of new premiums sold, according to LIMRA. During the same time period, multi-life premiums grew at three times the rate of total industry premiums. Today, LIMRA reports that more than 700,000 multi-life disability insurance policies are in force, representing more than $1 billion in premiums. Its popularity will likely continue to rise given the current economic climate as income protection comes further into focus and employers look for flexible products that help them meet the diverse needs of their staff.

As an employee benefit, multi-life can help to protect the income of top executives and provide a higher level of benefit than one could get through a company’s standard group disability plan alone. Employers interested in retaining top executive talent for the long-term can sweeten their benefit packages with this type of coverage.

In a time of budget tightening, multi-life disability has also emerged as a prime offering on the voluntary menu, as employers look for ways to be more creative with their employee benefits. They’re seeing high enrollment rates, even when the program requires employees to contribute to the cost of coverage.

One Product, Multiple Scenarios

Multi-life disability insurance combines the most attractive features of individual and group disability products. It’s a guaranteed standard issue product, so employees don’t have to take any medical tests to qualify for it. It has the same ease of administration that group plans have. Yet multi-life disability is an individual insurance product. Employees can take their policies with them if they leave the company. Premiums never go up as long as the contract is in force, which can last to age 65.

Likewise, the benefit amount paid is pre-determined, so the policyholder knows exactly how much money he or she will get in the event of disability. Finally, multi-life policies offer significant discounts of up to 25% (or higher, depending on the case) compared to similar coverage on the open market.
From an employer-financed perspective, companies can use multi-life disability insurance as part of a broader retention strategy for executives. The benefit is attractive even when offered as an employee-paid option, because it is available at steep discounts in the workplace. It can be offered to a specific subset of employees based on years of service and income. Key employees are seeking higher quality benefits from their employers. In troubled economic times, benefits such as multi-life disability will become even more valuable as people turn their attention toward financial and insurance planning and the potential need for income replacement. Further, executives may not be aware that group disability insurance coverage alone is not enough to replace a substantial portion of their income.

For small business owners who rely on a small group of key employees to run the day-to-day operations of the company, retention is an important issue regardless of the economic climate, and multi-life can be a retention incentive in a tightened market.

In addition to helping employers retain valuable employees, multi-life disability insurance also gives them a way to control the long-term costs of executive disability. They can lock in a low premium rate while the executives are still in their prime working years. This is an important feature since executives tend to have longer tenure with the company. The older they get, the more likely they are to have a disproportionate effect an employer’s health and disability costs.

Multi-life is showing even more potential as a voluntary offering. As a voluntary benefit, it gives employees in the C-Suite as well as the rank-and-file access to valuable coverage they would not be able to get on their own at such a favorable price. As a portable complement to traditional long-term disability products, it’s a perfect example of how producers can take a product in the group insurance market and turn it into a solution that meets the needs of employers and employees.

Like most voluntary benefit plans, there is no cost for an employer to offer multi-life disability insurance aside from any administrative costs associated with payroll deduction. Employees typically bear the entire cost of the premium. Employers might be easily convinced to add multi-life to the benefits menu, especially since these are guaranteed standard issue policies.

Both approaches have merit, depending on a company’s goals and its ability to finance the benefit. Multi-life disability insurance is a popular benefit with executives, even when they have to contribute to the premiums out-of-pocket. For example, an industrial real estate firm that paid 50% of premium (up to $50 a month) on behalf of 110 eligible employees saw a participation rate of 79%. Meanwhile, a healthcare firm with 78 eligible employees achieved a participation rate of 49% with a voluntary program alone.

Opportunity for Brokers

For brokers who are looking to increase their share of the worksite market, multi-life disability income insurance can be a compelling door opener to benefit managers and business owners eager to differentiate their benefits portfolios.

The key to multi-life disability sales is not to sell the need for the product. Rather, it is to sell the product design as well as the systems and support. It can give employers a new way to provide superior coverage to the people they value at a long-term rate guarantee. It can also allow them to manage expenses in a more cost-conscious era. You’ll have an advantage over many of your competitors in the worksite arena when you communicate these facts.

Disability will strike nearly one in five Americans for one year or more during their working years, according to the non-profit Life and Health Insurance Foundation for Education. As more employers come to understand multi-life disability income protection, they will appreciate its benefits: the flexibility to help manage costs, the while beefing up their employee benefits package, and the ability to act as a critical incentive to retain key employees. Most importantly, in a time of economic uncertainty, employees will value the opportunity to further protect their most important asset — their ability to earn an income and preserve their quality of life.
––––––––––
Michael Hagedorn, CFP, CLU, is vice president of Brokerage for The Guardian Life Insurance Company of America’s California Pacific agency. He began his career as a brokerage manager with Provident Life & Accident in 1990. In 1995, he joined Guardian. Since joining Guardian, he has participated as a Field Advisory Board member and Product Development Committee member as well as a speaker and panelist at the insurer’s national meetings and Disability Insurance Specialist School. In 2005, he was inducted into Berkshire Life Insurance Company of America’s Hall of Fame. He is a frequent speaker to employers, industry groups and professional associations on the need for income protection planning. He can be reached by phone at 310-545-1717 or e-mail michael_hagedorn@glic.com.