Tuesday, October 04, 2016

Why Tobacco Users Shouldn't Pay a Tobacco Surcharge

When you set up group health insurance plans, the option exists to separate out tobacco users from non tobacco users. This allows insurance companies to charge tobacco users higher premiums. But should tobacco users really pay more? I don't personally think so and that's what I want to talk about today.

It's Legal to Charge Tobacco Users More Even If They Don't Ever Go To The Doctor

First off, I want to talk about why tobacco users get singled out to pay higher premiums. That's because it's a legal way for insurance companies to charge higher premiums for some employees in your group. Since it's legal, you can bet that insurance companies want to do it.

It's often cloaked in the veil of some sort of "wellness" mission the employer has but it's basically just a way to get more premiums out of somebody.

Ironically though, you can't charge higher health insurance premiums for older employees. Nor more for females than for males. You also can't charge employees who actually have health conditions a surcharge because of their medical problems.

Those groups get subsidized by everybody else but the tobacco users do not.

Insurance Is Meant To Spread The Risk Across ALL Members Of The Group Not Just The Tobacco Users And Unhealthy People

Sometimes I think people forget that insurance is designed to spread risk across everyone in the group.

Not too long ago, I had an employee express disappointment that everyone got the same rate. He didn't use tobacco and didn't think it was fair that he didn't get to pay less. However, he completely overlooked the fact that he had high blood pressure and took medication for it. Shouldn't all the employees who don't have high blood pressure get to pay less in that case?

Of course, the answer is no, so why should smokers be any different.

Many times tobacco users don't even have any medical problems. This means they don't even use the health insurance they purchase but have to pay more than the employee who has had two heart attacks and a triple by pass surgery.

This doesn't make any sense to me.

A Tobacco Surcharge Creates Ill Will Toward You The Employer

When I enroll employees in benefits, employees aren't stupid. When they see a tobacco surcharge that means they will have to pay more even if they never go to the doctor, they look at their fellow employees.

Then they ask, why do I have to pay more than the employee who has diabetes or the employee who had breast cancer?

Last year I did an enrollment where the health insurance was set up so that employees who used tobacco paid $100 more per month than their non tobacco counterparts. If their spouse smoked, they also paid it. This meant some families paid $200 per month more than the non tobacco users.

Granted, these employees had a smoking cessation program available to them. They could enroll in that and get the tobacco surcharge waived in a couple of months.

But still, you are sending a clear message to those employees that creates resentment against you the employer.

It Encourages Lying To Avoid The Smoker Surcharge

Most employees that smoke will own up to it if they are everyday smokers. But the casual smokers who maybe only smoke every now and then don't consider themselves "smokers" even though they are.

You'd be surprised at the number of employees who say they don't smoke but really do. Of course, they aren't hardcore smokers. It's usually something they might do only when they go out for drinks or something.

It still counts though and they technically should pay the surcharge but you know what, they don't. That's not fair to the employees who are completely honest about it.

Shouldn't We Be Promoting Wellness? Isn't Tobacco Use Unhealthy?

Yes. You should be promoting wellness. And yes, tobacco use is unhealthy. I'm not advocating that smoking is great or anything. The only thing I am suggesting is that when it comes to spreading risk in your group, spread the risk across everybody like insurance risk is meant to spread.


Remember, that the tobacco surcharge is there for one purpose which is to collect more premiums. Theoretically it's there to offset the cost of the health problems the smokers and other tobacco users might have.

But in my experience, and while I don't have the scientific data to back it up, I've found that most of the tobacco users use the health insurance less than the non tobacco users who have medical problems.

And that's why I'm against the tobacco surcharge.

What do you think? Should employers charge a tobacco surcharge or not?

Let me know in the comments.

Monday, October 03, 2016

What is Considered Accidental Death for Insurance Purposes?

One of the more common questions I get from employees about life insurance is what is an accidental death? This question usually comes up if we are talking about an accidental death benefit rider or an accidental death & dismemberment (AD&D) policy. Let's talk about how the insurance company will determine what is and what is not an accidental death.

If It Says On The Death Certificate You Died Of An Accident, Then It's An Accidental Death

When an insured dies, the beneficiary has to file a claim with the insurance company. The insurance company will need a certified death certificate included with the claim paperwork. The death certificate should list a cause of death.

If you look at the death certificate pictured above, you'll notice the insured died of carcinoma of the lung and not due to an accident.

In this example pictured, the insurance company would not consider this death due to an accident and no accidental death benefits would be paid.

But if the death certificate said that you died in a car accident, then the insurance company would treat the claim as an accidental death.

Deaths Due To An Illness Or Old Age Are Not Accidental Deaths

If you die from any kind of illness, this is not an accidental death. So keep in mind that any die from a heart attack, cancer or some other medical condition, it won't be considered accidental by the insurance company.

This would include dying from old age as well.

Examples Of Types Of Accidental Deaths

Here are some examples of what would considered an accidental death. Things like:

  • Motor vehicle accident
  • Drowning
  • Fatal gunshot
  • Hit by a car

These are just a few examples of the types of accidental deaths.

Check Your Policy For Accidental Death Benefit Exclusions

Certain types of deaths not caused by illness would not be considered "accidental" by the insurance company.

  • Intentional injury like suicide
  • Act of war
  • Committing a felony
  • Pilot or crew member of plane that crashed

In every accidental death rider or policy that there is a list of exclusions. You'll want to be sure to check out the exclusions listed there.

What To Do If You Think The Death Was Accidental But The Insurance Company Does Not

I once had an employee tell me that his father had died and the death certificate listed the death as a heart attack. However, the circumstances of where he died and what he was doing led the employee to a different conclusion.

Evidently, his father raised cattle and he was found out in a field. The employee told me that he believed the father was rushed by one of the cattle and struck in the chest which caused his heart to stop and he died.

In order to prove that to the insurance company, he had to have the insurance company investigate the claim. An autopsy was performed and it turned out his theory was right and he was killed by one of the cattle. The cause of death was changed on the death certificate.

Then, his father's death was ruled accidental and the insurance company paid the claim that way.


Remember that the death certificate will be the main information that the insurance company has to determine if a death was due to an accident.

The insurance company may obviously investigate any accidental claim regardless of what the death certificate says. I once had an employee die of an accidental gunshot which was eventually ruled a suicide.

In most cases, medical examiners do a pretty good job of listing the proper cause of death on the death certificate and that's the overriding factor in determining whether an insurance company will treat a death as accidental death or not.

If you have any questions, let me know in the comments and I'll try to help.

Tuesday, September 27, 2016

3 Dependent Child Group Term Life Insurance Q&A's

As most employee's quickly find out, group term life insurance seems to generate more questions than you'd think for such a simple concept. One area that generates three very specific questions is group dependent child term life insurance.

Who Are Considered Children?

With so many different types of families, who are considered eligible dependent children isn't always quite clear. You'll have to be sure and ask about your particular situation to see if your dependents are eligible.

Here's a run down of the typical dependent child scenarios:

  1. Natural children: Natural children are always considered eligible children. 
  2. Step-children: Are usually considered eligible children.
  3. Adopted-children: Are usually considered eligible children.
  4. Legal custody: Not always considered eligible children.
  5. Legal guardian: Not always considered eligible children.
  6. Children of a partner you live with or use to be married to: Not normally considered eligible children.
  7. Grandchildren: Not normally considered eligible children unless they've been adopted.

I'd say the the most common questions I get is whether grandchildren are eligible followed by children of a partner you live with or use to be married to.

Keep in mind that the above list will vary by plan. The most important point I want to make is if you have a unique situation to make sure you ask. You have to check because it's not always clear.

How Long Are Dependent Children Insured?

The second most common question I get once we know if your dependents are considered eligible is how long are the children insured.

Again this will vary by plan so you'll have to ask. But, a good rule of thumb is that coverage is probably good until they are one of two ages - either 18 or age 26 and they might also have to be an unmarried, dependent full-time student.

Remember, if you terminate employment, there's a good chance your dependent life coverage will most likely terminate.

Can Dependents Increase The Amount Of Life Insurance When They Are Older?

The third most common question I get from many employees is if their children can increase their life insurance amount later.

Usually this is not the case. However, there is a chance that the dependent life insurance might be convertible to a higher amount. And so while the answer is usually no they can't, there may be a hidden loop hole that might allow it.


These are three of the more common questions that I receive about how dependent life insurance coverage works.

The lesson here is - as it always is with group insurance plans - that while these are guidelines, you always have to ask to be sure.

While sometimes employees hesitate to buy life insurance for children, I go over why you should consider it in my article called: 3 Reasons to Buy Life Insurance for Children (and Grandchildren).

What kind of questions do you have about group dependent life. Put them in the comments below and I'll try my best to answer them.

Monday, September 26, 2016

Is Group Accidental Death & Dismemberment (AD&D) Worth It?

Many group term life insurance plans offer employees the opportunity to purchase group accidental death & dismemberment insurance. AD&D benefits can be added as an attachment to basic life and supplemental life insurance or as a separate standalone AD&D plan.

In this article, I go over what group AD&D is and whether or not you should buy it.

Option 1 - Included in the Underlying Group Term Life Plans

Many times the accidental death & dismemberment is added to the underlying group term life plans. This means in order to get AD&D in those type of plans, you have to participate in the underlying plan. If you do participate, the AD&D benefits will be equal to the underlying group term life insurance amount.

EXAMPLE: You have $40,000 of basic group life insurance that includes an AD&D option. You die in an auto accident. Your beneficiary would receive the $40,000 of basic group life insurance PLUS the $40,000 accidental death benefit.

Option 2 - Purchased as a Standalone Benefit

The other way group AD&D is sometimes offered is as a standalone benefit. This means that you can buy the AD&D even if you don't buy the underlying group term life insurance plan. If you are participating in the group term life, your AD&D plan can be for an amount that might be completely different than what you have for basic or supplemental life.

A standalone AD&D plan is guaranteed issue, so you can pick it up even if you have medical problems and can't qualify for life insurance.

Premiums are also based on the amount of the AD&D you buy and not based on your age.

Remember AD&D Pays for Accidents Only

Keep in mind that AD&D benefits only pay if death or dismemberment was due to an accident. If you die or have dismemberment due to an illness, no benefits will be paid.

It's more common than you think for people to get confused about the kind of life insurance they have. The premiums for AD&D are a lot cheaper than for "real" life insurance, so sometimes people buy it because it's cheap or because they were otherwise uninsurable. It's not until they die of illness that their beneficiaries find out that no benefits are paid.

It's more likely that you'll die of an illness than an accident. Make sure that any AD&D benefits you purchase in a standalone AD&D plan are above and beyond additional life insurance you already have and not in place of it.

Learn more about what is considered accidental death for insurance purposes.

Sample Group AD&D Schedule of Benefits

Here's a sample schedule of AD&D benefits:

  • Loss of life: Principle sum
  • Loss of two or more members: Principle sum
  • Loss of speech and hearing: Principle sum
  • Loss of one member: 1/2 Principle sum
  • Loss of speech or hearing: 1/2 Principle sum
  • Loss of thumb and index finger of the same hand: 1/4 Principle sum

In addition to the schedule of benefits, there may be additional payouts for family members and for things like wearing your seatbelt if you were in an auto accident. You'll have to check your employer's plan because every plan is different.

Should You Buy a Standalone Group AD&D Plan?

From an actuarial point of view, AD&D probably isn't likely to ever pay a benefit for you. If you have adequate life insurance and want to buy some AD&D on top of that, there are worse things people waste their money on. 

If you travel a lot for your job or are involved in other risky activities, there's certainly nothing wrong with picking some up. You might want to check your group's policy for any exclusions.

A lot of employees will opt to allocate a buck or two and there's certainly nothing wrong with that approach if you want to do that too. Just don't waste a ton of money on AD&D.


Accidental death & dismemberment is an option that many employers have either built into their standard group life rates or as a standalone plan.

Just remember it's more likely you'll die of natural causes instead of an accident. Be sure you know what you are buying when you are buying AD&D and that it will only pay out for accident related claims.

Let me know in the comments what you think about AD&D and what you've seen in employer groups.

Sunday, September 25, 2016

How Much Life Insurance Do I Need?

One of the most common life insurance questions I get is how much life insurance do I need? Below, I walk you through 6 simple steps to determine the right amount of life insurance for your situation.

Here's the basic formula then I walk through it in more detail below along with an example.

  • ADD: Funeral expenses
  • ADD: Pay off mortgage
  • ADD: Pay off debt
  • ADD: Provide for college
  • ADD: Income replacement
  • ---------------------------------
  • TOTAL: Life insurance needed
  • SUBTRACT: Current cash
  • SUBTRACT: Life insurance already in force
  • ---------------------------------
  • TOTAL: Life insurance needed

STEP 1: Start With An Amount For Funeral Expenses

Unfortunately, when you die, you have to pay for a funeral. Feedback I've received from people I've talked with who have actually paid for a funeral lately say it's around $10,000.

Since most of us don't believe we will die today, it's a good idea to estimate what a funeral would be when you are older. It's a good idea to calculate out what a funeral would be estimated to be when you are more likely to die.

To keep it simple, add $10,000 for every ten years you are away from 80. So if you are 40, that's 4 decades until you are 80. So take $10,000 times 4. That equals $40,000. Add that to the initial $10,000 and now you have $50,000.

This is the amount of life insurance you would start with.

STEP 2: Pay Off Your Mortgage

This is pretty simple. If you have a $175,000 mortgage that's what you would add to your total. If you don't have a mortgage and only rent, it might not be a bad idea to consider adding the amount your rent would be if it was a mortgage. To make it simple, I'd add $100,000 for every $1,000 in rent you pay each month.

Add whichever number applies to you to your total.

STEP 3: Pay off your other debts

Add up all your credit card debt, your auto loans and anything else you owe other people and add that to your total.

STEP 4: Provide money for college

For each child, add $100,000 for the cost of a four year education.

STEP 5: Provide income replacement

I'd approach the income replacement one of two ways. The first way is to take the annual income you want to replace and multiply by a certain number of years you want to replace it for. I would suggest no less than 5 years as a multiplier.

The second way I'd do it is take the annual income you want to replace and divide it by 4%. This money if invested at a 4% return would that annual income each and every year.

This will provide a larger number than the first option. Sometimes, this makes people uncomfortable and it's easier to think in terms of a smaller number.

Whichever way you go, add this number to your total.

STEP 6: Subtract current cash and life insurance in force

After you have your total, subtract any cash you have saved up in savings and retirement. This will give you your final life insurance you need number.

Real World Example

John is 35 years old. He has two kids and makes $85,000 per year. He owes $125,000 on his mortgage and has two auto loans that total $27,000. He also has a few credit cards that total $12,000. His cash in savings is $13,000 and he has $112,000 in his retirement plan. At work he has $25,000 in basic group term life insurance and another $100,000 in group supplemental term life insurance. He also owns a $100,000 term policy.

How much life insurance does John need:

  • Funeral expenses: John needs $10,000 in life insurance for funeral expenses now. But like most people, John doesn't think he will die now. He is 45 years away from 80 years old which is 4.5 decades from now. 4.5 times $10,000 is $45,000. The beginning $10,000 plus $45,000 makes $55,000 for funeral expenses.
  • Pay off his mortgage: Add another $125,000 for his mortgage so John's total is now $180,000.
  • Pay off his debt: John's total debt is $27,000 plus $12,000 or $39,000. His new total is $219,000.
  • Provide for college: John has two kids. Two kids times $100,000 for each child is $200,000. Add this to his prior total and his life insurance needed is $419,000.
  • Income replacement: John decides he wants an ongoing income of $85,000 per year. $85,000 divided by 4 percent is $2,125,000. John can't really fathom that number so he opts instead to replace his income for 5 years. 5 years times $85,000 is $425,000. Added to his prior total and his new total is $844,000.
  • Subtract cash and insurance in force: John has $125,000 saved up and another $225,000 in life insurance in force. That total is $350,000. Subtract that from the life insurance number we calculated he needed in the last step which was $844,000. His new total is $619,000.

Based on the simple 6 steps we calculated that John might want to pick up another $619,000 in life insurance.


In the end, there is no right or wrong answer but the above 6 simple steps will give you a really good foundation for the amount of life insurance you might need.

How much life insurance do you need? How did you calculate it?

Let me know in the comments.

Saturday, September 24, 2016

6 Key Features of Supplemental Group Term Life Insurance

If your employer provides you with some basic group term life insurance, there's a good chance you will have the option to buy additional group term life insurance. This option is called supplemental group term life insurance but it might also be called voluntary group term life insurance. Let's look at 6 key features that most of these plans have.

1. It's Employee-Paid Group Term Life Insurance

Supplemental term life insurance is an employee-paid benefit. If you want to pick up additional coverage for you or for your family, the premiums are paid 100% by you through payroll deduction.

2. It's Normally Guaranteed Issue At Initial Enrollment

Usually you can buy up to a certain amount of life insurance without having to provide evidence of insurability. The amount of life insurance provided without medical questions will vary from employer to employer.

If you have any medical conditions, it's a good opportunity to get life insurance without having to qualify for it. Don't miss the initial enrollment. Otherwise, with most plans, you will have to answer medical questions at later enrollments and can be turned because of health at that time.

Some plans allow you to increase without medical questions at later enrollments if you get less than the guaranteed issue limit at the initial enrollment.

If you don't have any medical problems, you can opt for coverage above the guaranteed issue.

3. Rates Are Likely To Increase As You Get Older

Many of the supplemental group term life plans I've seen are attained age plans that have five year age bands. With attained age plans, your rates will go up as you get older. At older ages you might get priced out of the plan.

I know I have offered issue age plans that keep you in the same age bracket from the age you signed up, but that's not the norm in the marketplace.

You'll want to find out what rate structure your employer's plan has. If it's issue age, that's a huge plus for you down the road especially if you are younger (assuming the employer never changes the plan and you stay with the employer).

4. Dependent coverage may be available

Coverage for your spouse and dependents may also be available on a guaranteed issue basis. In order to get coverage on your family, you will probably have to buy coverage for yourself first.

5. Amount of Life Insurance Still Probably Reduces At Older Ages

Like basic group life insurance, supplemental group term life insurance will also begin to reduce as you reach older ages. Most supplemental plans have a life insurance age reduction calculation built in to them just like the basic group term life insurance does.

6. Portability And Conversion May Be An Option If You Leave Employment

If you leave your employer, many supplement plans today do have some portability. This means you can keep your coverage after employment. Keep in mind that that doesn't mean coverage will necessarily last your whole life. The life insurance will still expire at some point.

Your rates might also change slightly if it's a portable term plan and go up significantly if you convert it to a whole life policy. I talk more about conversion and portability here.


Supplemental group term life insurance is a great option to have at your employer. But, it's no substitute for also having your own personal life insurance that you own and control. I talk more about some of the drawbacks to group term life insurance in this article.

Let me know if you have any questions about supplemental group term life insurance in the comments.

Here's a video I did awhile back on supplemental group term life insurance too.

Friday, September 23, 2016

Are Your Group Insurance Rates Attained Age or Issue Age?

Most employees don't realize how the rates work on the group insurance programs they sign up for. How these rates are structured have a big impact on them down the road. There are two types of group insurance rates - attained age rates and issue age rates. In this article I want to walk you through how these rates differ and why it's important.

Let's start first by looking at a sample age band to see how these rates are presented to employees.

A Sample Age Banded Chart

Whether your group insurance rates are attained age or issue age, they will appear as age banded rates. The age bands will be in five or ten year increments. A five year age band will look something like this chart of made up critical illness rates I've listed below:

  • Critical Illness Coverage
  • $5,000 Benefit
  • ------------------
  • Weekly Rates
  • ------------------
  • <25:     $0.99
  • 25-29:  $1.05
  • 30-34:  $1:75
  • 35-39:  $2.35
  • 40-44:  $2.80
  • 45-49:  $3.87
  • 50-54:  $4.93
  • 55-59:  $6.25
  • 60-64:  $9.65
  • 65+:   $13.30

If you are interested in purchasing this $5,000 critical illness insurance benefit, the first step is the same for either type of group insurance rate.

Let's say I am 49 years old and I decide to enroll. Since I haven't turned 50 yet, I'm still in the 45-49 age bracket. My weekly cost according to the bracket would be $3.87 per week.

A lot of employees would simply look at the rate and decide if they could afford it and leave it at that - especially if they don't see a chart that might make them think to ask if the rates increase later or stay the same.

The Difference Between Attained Age Rates And Issue Age Rates

After I've signed up for my critical illness benefit, I'll want to know what my rates might be in the future. In order to find out, I'll need to know whether the rates are attained age or issue age.

Here's a breakdown of the difference in how the rates work for attained and issue ages:

  • Attained age rates Attained age rates increase as you get older and move into the next age band. In my example above, next year, my rate would increase from $3.87 per week to $4.93 per week for the same coverage (assuming no changes in rate). When I turn 55, 60 and 65 my rates would continue to increase.
  • Issue age rates With issue age rates, I get to always stay at the age of 49 in the chart. That means that my rate that starts at $3.87 per week would be the same next year. Again, that's keeping things simple and assuming the rates would stay the same.

Given a choice between the two, which would you choose? It would make the most sense to be able to choose issue age rates if they are available to you.

Attained Age Rates Price Employees Out Of The Plan

On attained age plans, eventually the rise in rates prices employees out of the plans they got when they were young. While I don't mind this with a product like group term life insurance because you can alway lock in some permanent life insurance that will never change in rate, I'm not as big a fan of critical illness plans that use attained age rate structures.

That's because you'll be tempted to leave the plan as the premium goes up. If employees ask what happens to the rates after the sign up, they might not even participate in the first place.

Promote Issue Age Rates If You Have Them

Employees, especially your younger ones, need to know how great issue age rates are. I recently offered an issue age life insurance plan and encouraged all of the younger employees to take the full guaranteed issue of $100,000 because the rate was so cheap.

Once I explained why it was so important to them, and that they locked in their age, most of the employees I talked with understood the value of it. Had I never explained how the offer worked, many would have likely passed on the offer.

Remember Rates Don't Always Stay The Same And Carriers Can Change 

It's easy to look at the rates above and think they guaranteed. Remember though that group insurance rates can change based on experience. So unless you read otherwise, realize that even if you can lock in your age, your premium might fluctuate some over time.

  • REMEMBER: Each group insurance plan works independently of the others. This means you could have issue age rates on a critical illness plan and attained age rates on the life insurance plan. Don't assume just because one plan is one way that they are all the same. You have to check.

Also, keep in mind if you are an employee, that if you have issue age rates this enrollment, there's no guarantee you'll have the same offer next year. Since these are group plans, you don't control what's offered so you have to pay attention at each enrollment.

If you are an employer looking at plans from year to year, you want to think carefully before replacing an issue age plan.


The rate structure on group insurance plans is different from company to company. Whether you are an employee or the person responsible for implementing your employers group benefits, you'll want to ask whether your group rates are attained age or issue age.

This will help you better understand what will happen to your rates down the road.

Let me know what you think about attained age rates vs issue age rates in the comments below.

Thursday, September 22, 2016

Watch Out for the Age Reduction Schedule in Group Term Life

The life insurance age reduction schedule is a group term life insurance provision. It reduces the face amount of your group life insurance when you reach certain ages like 65 or 70.

It's not unusual for an employee to first learn about this reduction at the age it first reduces. Details about how most age reduction schedules work and what you want to watch out for are below.

I also made this video that talks about group life insurance age reduction schedules.

RESOURCE: If you need a refresher on how group term life insurance works, start with The Complete Guide To Group Term Life Insurance.

What is the Life Insurance Age Reduction Schedule?

The age reduction schedule reduces the face amount of your group term life insurance. The reduction will occur if you are still working when you reach certain older ages. The most common age face amount reductions begin is at age 65 or 70.

It's there because it costs more to insure older individuals than younger ones. Instead of raising the premiums, they lower the amount of the life insurance if you are older.

When Does the Age Reduction Schedule Start to Reduce My Life Insurance?

When reductions start depends on the provisions in the group certificate. In general, these face amount reductions start at around 65 years or 70 years old.

I can't say for sure if your plan has an age reduction schedule. Every plan is different. I would need to look at your employer's group certificate to see for sure. I can say it's likely your employer's plan has a life insurance age reduction formula built in it. But like everything with group insurance it will depend on what the actual contract says.

An Example of How the Life Insurance Age Reduction Calculation Works

As I mentioned, the age reduction schedules will vary from plan to plan. Here is a sample schedule that begins at age 65.

  • At age 65: 25% reduction in life insurance
  • At age 70: 50% reduction in life insurance
  • At age 75: 75% reduction in life insurance
  • Benefits end at retirement

Group term life insurance usually reduces at older ages.
This means that if you have $50,000 in life insurance, it will be $37,500 at age 65. At age 70 it will reduce to $25,000 and then at age 75 it will reduce to $12,500. Finally, when you retire, under the example schedule, your life insurance would end.

Where to Find the Age Reduction Schedule in Your Employer's Group Term Plan

If you are lucky, you'll find the age reduction schedule is in your benefit guide. But I've noticed it's not always published. Sometimes, you have to check with the person who handles your benefits. This could be your human resources person or the agent who does the group life for your employer.

It's also not uncommon to find out that nobody knows what the schedule is when you ask for it. That's no surprise when it happens.

The best place to find the schedule is in the group certificate. Your employer should have a copy of it.

A few other points you want to be aware of:

  • Insurance carriers can change. It's not unusual for group term life insurance carriers to change from one year to the next. So remember, the age reduction schedule might be different when you get older. 
  • Every group plan is different. Group term life insurance plans vary from employer to employer. Check with each employer you work for to see how it works.
  • Group term life terminates. At some point, your group term life insurance expires anyway. That might be when you leave employment or at a certain age even if you are able to "port" it.
  • Spouse rules may be different. Rules on spouse age reductions may not match the employee. If you have your spouse covered under a group term life plan, you'll want to know how it works for them as well.

The most important thing to remember is to be aware of it.

Term Life Insurance Isn't Meant to Last Forever So Don't Expect It to Be There When You Need It

Group term life insurance is only designed to last for a certain period of time. It's not supposed to last for your whole life. So, there's a good chance you'll outlive the group term life insurance and it won't be inforce when you die.

If it was likely to be inforce when you die, then it would cost a lot more for everybody covered under the plan.


I've seen employees pretty upset that no one told them their life insurance at work would reduce. Had they known it would happen, it might have been easier to buy some whole life insurance. They would have been younger and could have been healthier.

So now you know that the age reduction schedule is out there and it's something you can plan for. It's a good idea to have at least enough permanent life insurance for your funeral.

Permanent life insurance may last your whole life.

The age reduction schedule is one of eight problems with group term life insurance.

Does your employer's plan have an age reduction schedule?

Let me know how it works in the comments below. Let me know if you have any questions as well.

7 Most Common Types of Life Insurance Riders

When you buy life insurance, depending on the type of policy you buy, you usually have the option to add additional features and options to the policy. These additional options are called riders. I've listed 7 of the most common life insurance riders below and what each one of them does.

While I've tried to list the most common life insurance riders, each insurance company you might work with has developed their own riders with rules that are unique to them. Most, but not all, optional riders have an additional premium cost to add them. Be sure and check with your insurance agent to see what is available.

Here's the list I put together for you.

  • Accidental Death Benefit Rider (ADB) Accidental death benefit provides an additional death benefit in the event the insured dies in an accident. The most common amount is double the face amount of the base policy. Sometimes accidental death benefits include dismemberment benefits. In that case it would be abbreviated as AD&D.
  • Waiver of Premium Rider Waiver of premium pays the premium in the event that the insured (or sometimes the payor) becomes totally disabled and can't make the premiums. After an elimination period like six months, the insurance company would then begin to pay the premium.
  • Child Term Rider A child term rider covers any dependent children for a certain amount of term life insurance up to a certain age. The child rider is usually priced as a flat amount no matter how many children you have. It can also include an option to convert the rider into a permanent policy later.
  • Level Term Rider A level term rider adds a flat amount of term life insurance that last for a certain period of time to a whole life policy.
  • Guaranteed Insurability Rider A guaranteed insurability rider provides an insured with options to purchase additional life insurance at later points in life without the need to satisfy any medical requirements.
  • Terminal Illness Rider A terminal illness rider will pay you part of your life insurance while you are alive should be diagnosed with a terminal illness.
  • Chronic Illness Rider Similar to the terminal illness rider, the chronic illness rider will pay you an amount of money in certain situations if you are diagnosed with a certain chronic illnesses or lose the ability to do a certain number of activities of daily living. Activities of daily living, or ADL's as they are called, are things we take for granted every day like eating, going to the bathroom and getting around for example.

Each of these riders have certain unique characteristics that you might find important and want to add to your policy.

The most common riders I see people add are accidental death benefit, wavier of premium and the child term rider.

What kind of life insurance riders have you added to your policy? Let me know in the comments below.

Wednesday, September 21, 2016

3 Steps to More Effective Benefits Communication at Enrollment

Over the years, I've noticed employer groups have tried to move away from face-to-face enrollments with employees. Instead, there's been a trend to rely more and more on email and other passive forms of electronic tools to communicate with employees and to enroll benefits.

While it would be nice to have everyone read everything you send out, understand it and enroll without any help, in real life it doesn't work that way. You know many employees don't take the time to read everything if they read it at all.

And since employees are spending a small fortune on their benefits, it only makes sense to take them through a better enrollment process than a self-service approach. We need to do this even though you and I both know they should be more proactive themselves.

So, if you find yourself saying "I've sent out 80 emails and there is only so much I can do," then it might be time to take a more active approach to enrollments.

What I've done here is list three very simple but effective steps that you can use to improve your level of benefit's communication.

Let me walk you through each of these three steps and how they work.

Step 1: Conduct face-to-face benefit presentation meetings where employees know they won't be required to sign up at that session.

The first step is to actually start meeting with employees to walk them through how benefits work. These meetings need to be done by the insurance company or brokers who are experts in how they work.

These meetings can be done with groups of employees at a time or in individual one-on-one sessions. What's most important about these meetings is that employees know that they won't have to buy anything at them. It's information only.

At these meetings, you'll have these major goals:

  • Diffuse resistance to hearing the information Many employees don't want to go through an enrollment process where they feel they will be pressured into buying something. By letting employees know up front that this part of the enrollment process is just to explain how the offer works and they can take the information home to review it, helps reinforce a no pressure atmosphere.
  • Explain the enrollment process How the enrollment process timeline works is important information. If people know what you need them to do and when you need them to do it, they are more likely to do it. This is the time to explain how the enrollment process works.
  • Explain the products and underwriting offers The next goal is to explain how the products work as well as any underwriting concessions that have been made by the insurance company and why they are important. You'd be surprised at how many employees say I didn't know you could do that and enroll in benefits they initially didn't want to hear anything about.
  • Answer questions Once you are done, employees usually have questions. You'll want to make sure that they get those answers at that meeting. That's why having experts on hand facilitates this process by making sure they get the right answers to their questions.
  • Allows them time to get documentation If employees need to find out social security numbers and things like that, you can let them know.
  • Reinforce the enrollment process At the end of this meeting, you want to reinforce the next step of the enrollment process so employees don't forget. If you don't remind them what they have to do, they won't be ready to enroll when you need them to.

That's a good rundown of the first step in the enrollment process. It's all about walking employees through what the offer is, how it works and letting them know what the next steps are.

Before I move onto step 2, here's a video of me talking about the presentation meetings.

Step 2: Give employees a day to review the information to decide what they want to do.

After meeting with the employees, your next step is to let people take it home to take a look at it so they can review it. This step is important for a variety of reasons. Those are:

  • It eliminates sales pressure When employees learn you are ok with them taking the information home, it eliminates the pressure that can materialize in the enrollment process. If you skip step 2, employees feel pressured even if you don't care what they do and are just trying to save time. It's not unusual for employees to tell you up front, if they have to decide today, the answer is no. Letting people review stuff privately is what you want even if they don't take advantage of it.
  • It gives employees time to review what they have Allowing time to review lets them check and see what they have in place already and how everything fits in with what they have.
  • It allows employees to see what their spouse has Employees will often hold up the enrollment process mid enrollment because they suddenly realize they need to check and see what their spouse has. This reduces the number of incomplete employees left to enroll.
  • It gives them time to make sure they want what they get Since they can take the information home first, they can talk with their spouse or other family members to get advice. They can check their budget. That way when they sign up for stuff, they'll generally keep it unless some strange circumstance like divorce changes it.
  • They can get personal family information If social security numbers or other family documentation is needed, employees will have time to get it.

In order to save time, many enrollments skip step 2 entirely and expect employees to sign up the day they are presented to. This subconsciously puts pressure in the process when it isn't needed even if that isn't your intent.

I typically present one day and let employees know I'll be following up on the next day. This gives them the night to check what they need to but moves the process along.

No matter what followup period you choose, whether it's a day or a week, you'll always have a few employees who need more time. I eventually settled on the next day as follow up because I noticed even if you give employees a week, some will still delay after that amount of time which makes the process take too long.

I'll discuss how to handle employees who tell you that they haven't decided when you follow up in the next step.

Before I move onto that, here's a short video I did about the review step if you have time to watch it.

Step 3: Follow up with employees individually to find out what they want to do.

Finally, your last step is to meet with all of the employees individually to see if they want to sign up. If you have done your job right, then most of the employees will know that you were coming back and have decided what they want to do.

When you followup, your focus is on the following items:

  1. You want to answer any outstanding questions The first thing I try and always ask employees is did they have any questions. If they do, then I can make sure those are answered. If not, then I can move onto the next step.
  2. Find out if they want to enroll or not Next, I found out what they want to enroll in if anything. If they want to sign up, I take care of those requirements and let them know what to expect in terms of deductions and when they will receive their paperwork.
  3. Accept the no's If I followup with an employee and they say they don't want to do anything, I accept that and move on. It's important to accept these answers and move on so that you don't pressure employees. You've presented the offer, you let them review it and they decided. Accept it.
  4. Handle the undecideds The last item on the agenda is to handle those employees who for whatever reason weren't able to decide and work out a plan to followup with them. I let those employees know that I'll be back the next day to followup and repeat the above process. After that, for the most part, those employees who don't know on the second followup day just aren't comfortable saying no to you. Not always, but most of the time. So, I just let them know how to followup with me. If I don't hear from them, I just consider them no's and move on.

The main thing about the followup process is that you live up the how you said the enrollment process was going to work and don't go trying to turn no's into yes's and start pressuring employees.

When you do that your enrollments this way, subconsciously everyone realizes that you are there just to help. And that's what you want.

Before I wrap this up, here's one last video that talks about the followup step in more detail.


While these steps are simple in nature, they are extremely important. If you try and cut corners by combining steps or by dropping the ball and not following up, your enrollments won't be nearly as beneficial to the group you are working with.

However, when you follow these steps, you'll be able to know that employees truly understood the benefits and offers that were made to them and made a decision based on real information that you wanted communicated to them in the first place.

This three step process is by far the most effective way to communicate benefits information to your employees.

If you have any questions, let me know in the comments. I'll be happy to help.