Group vs. individual life insurance

Employer-provided group life insurance has been a staple of the U.S. working world since the 1940s. While such policies do have their benefits for employees – such as guaranteed coverage – they also have their disadvantages. For instance, the low adverse selection of group policies (i.e., how insurance providers measure risk) means that such policies provide minimal coverage and payouts. As such, most employees on a group policy are insufficiently insured.

The second major problem with group policies is that they are tied to a specific employer and don't transfer when an employee switches jobs. In an era when workers are switching jobs with much greater frequency than ever before, such restrictions are not appealing. The combined Millennial and Gen-Z generations, which are set to become the dominant workforce demographic in the next few years, are particularly averse to such non-portable benefits.

By contrast, an individual life insurance policy provides more extensive coverage and higher payouts. Best of all, it's fully portable, meaning an employee can take it with them when they leave. Such policies are also highly customizable, giving policyholders a lot of freedom in the type of plan they wish to purchase and how payments will be structured. Cash-value options are another feature of individual policies, giving insureds the option to pay more for the ability to make withdrawals, take out loans, or increase their death benefits while they are still alive.

In short, individual life insurance is by far the superior option and can be a crucial part of a company's benefits package. However, while individual policies do provide better financial protection and greater flexibility, they also take a little more work to put together.

Leveraging tech to provide better coverage

As you might expect, individual life insurance requires a more in-depth risk evaluation than a group policy. Applicants must provide an extensive amount of paperwork, such as their medical and financial history, as well as document their lifestyle and preferred hobbies.

In addition, applicants must also undergo several medical exams to determine their current health. Even assuming that an applicant is in perfect health, the typical duration of the underwriting process on an individual policy is 45 to 60 days. This long wait time is the main reason why most benefits packages have, at least historically, not included individual life insurance policies.

But that's changed a lot in the last few years. Rapid digitization within the insurance industry has led to the rise of insurtech, a new technologically driven approach to insurance that is doing away with the slow and cumbersome processes of traditional underwriting. The cornerstone of insurtech is the use of artificial intelligence (AI) and machine learning (ML) algorithms that can quickly and autonomously gather all the required information for underwriting purposes. In addition, these algorithms can also be trained to assess an application, determine the applicant's risk level, and form a pricing model in a matter of minutes.

With such speed, it is now possible to offer near-instant underwriting to employees and their dependents, providing them with the ability to view quotes, apply, get approval, sign, and pay – all within five to 10 minutes. This can dramatically expand the viability of including individual life insurance as a voluntary benefit, especially when the whole sign-up process can be completed through a digital omnichannel, a sort of online marketplace for purchasing insurance. Such omnichannels are another feature of insurtech and can allow an employee to purchase additional life insurance at any time year-round. For example, according to one study, there has been a 29% increase in online life insurance purchasing over the last six years.

Communicating your benefits

Having the right life insurance benefits won't be enough if your employees don't see the need for signing up. This is something that a lot of our business clients have told us over the years – many employees, particularly millennials, aren't aware of the need for additional life insurance, and view their group policy as good enough. It's a problem that those in the life insurance industry have been aware of for quite some time. People don't know that their group policies come with limited coverage and meager payouts of between $10,000 and $50,000, which isn't even a year's salary for many workers.

With that in mind, educating your employees on the benefits of obtaining an individual policy needs to be as much of a priority as providing those policies. Granted, not everyone will be at a time in their life when they need comprehensive life insurance, but they should at least know that these policies are available when they need them. As such, HR managers should take the time to sit down and talk with each employee, both new and current, on what benefits are available, why they are worth taking advantage of, and how an employee can sign up.

By providing your employees with additional coverage, you'll be able to capture them early in the career lifecycle and ensure greater employee satisfaction and loyalty. This is the primary aim of all benefits packages and why it pays to put the time and effort into crafting the best possible package.

Related: Why employers should offer options for individual life insurance

It's never too late for a company to update its benefits package, and those that do in the face of changing employee expectations will reap the advantages of a more committed workforce. While individual life insurance might only be one part of your voluntary benefits, it can be a crucial offering that allows an organization to win the fight for attracting and retaining talent. And it doesn't need to be difficult or complex to include it in your benefits offerings.

Bob Gaydos, CEO of Pendella