In the world of selling voluntary benefits, one of the most time-honored products is voluntary term life. It began as an offshoot of group term life. An unknown genius selling group term life insurance went to the underwriters and actuaries with a request along the lines of "what if some of the people we insure in a group want to purchase more life insurance through the convenience of their group plan?"
Thus was born what over the years has been known as optional, supplemental, and now voluntary term life.
Over the years, VTL gradually moved into its own product niche. Where once it almost always accompanied employer-paid group term life, now many,--if not most--voluntary term life plans stand alone from the employer-paid group life plans. Features like portability have been added, as have variations on living benefit payouts, waiver of premium that is similar to individual plans, and coverage that extends into retirement years. Portability is especially imprtant in today's uncertain economy, as we discussed in a column earlier this year.
Given that voluntary term life is such an established product, is there new potential given today's marketplace? Let's begin by considering a couple of observations from a recent news article.
- Item No. 1: Wall Street Journal, April 15, 2009: "The rigid credit market is hitting term insurance premiums, reversing a long downward trend in the cost of one of the most inexpensive forms of life insurance."
- Item No. 2: Same article "Term insurance is particularly attractive now, when the tough economy is forcing consumers to look for ways to cut costs."
So consumers and consumer advocates see term life insurance as a product that provides a good answer for family financial security in today's economy. At the same time, individual term life rates are trending upward.
Voluntary term life rates are not trending upward. In fact, if anything, they have come down over the past few years. Based on my observations, the reduction has been in the range of 2 percent per year for the past decade. I often hear the "fear factor" comment: "Voluntary term life premium rates could go up if group experience is poor." Let's face it - insurance companies are unlikely to increase rates on a voluntary life plan unless the case is very large and actuarially credible. That means unless a plan has tens of thousands of life years exposed, and poor experience, a rate increase would be very unusual.
Meanwhile, VTL guaranteed issue limits (and overall benefit maximums) have been increasing as industry experience continues to be favorable. Access to voluntary group benefits for dependent spouses and children is also expanding, as many states have relaxed limitations on spouse face amounts and available child amounts have increased as well.
How is VTL selling? In a 2009 study of VTL products, Eastbridge Consulting Group notes that industry sales of VTL in 2008 were up about 30 percent over 2007 sales, and that "...it is still the most commonly offered [voluntary] product by carriers today. Life insurance is also the most frequently owned voluntary product by employees."
So it's time to think again about voluntary term life. The price is right, the underwriting is simple, and the product is very timely in light of the needs of today's employees and their families.
Marty Traynor is vice president ofvoluntary benefits at Mutual of Omaha. He can be reached at
marty.traynor@mutualofomaha.com.
