Growth of employer-sponsored group life insurance

Monthly Labor Review, Oct, 1991 by Michael Bucci

As both employers and employees came to see the merits of employer-provided group life insurance, commercial insurers recognized that a tremendous business opportunity existed in this area. They began to market the new product with vigor. In 1920, just 9 years after the Pantasote Leather Co. policy was issued, there were 6,000 group policies in force in the United States.(16) This number tripled by 1930, but growth slowed over the next 15 years, even though wartime wage stabilization laws caused some employers to offer benefits in lieu of increased wages to attract workers. With the conclusion of World War 11, however, the vigorous growth resumed. In 1945, there were 31,000 group policies in effect; by 1960, the number had risen to 169,000; and by 1989, there were 701,000 group policies in force in this country.(17) This astronomical growth was also evident in the total amount of coverage provided--$1.5 billion by 1920, $100 billion by 1955, $1 trillion by 1976, and more than $3 trillion by 1987.(18)

While the sheer number of policies issued escalated dramatically over the years, the reasons for issuing the policies changed very little. However, a few developments provided additional impetus for the spread of employer-sponsored life insurance.

Initially, employers almost always paid the full cost of the policy. In the years immediately following World War 1, the Nation entered a period of economic contraction as it made the transition from a wartime to a peacetime economy. As some businesses began to experience decreasing profits, one of the first compensation items to be considered for termination was the relatively new group life insurance plan. Instead of eliminating these programs altogether, some employers began asking employees to contribute toward the costs of the premiums. This reduced the employer's share of the burden while allowing employees to continue receiving insurance coverage at reduced rates. The practice of joint contributions is still the policy of some employers today; in 1989, 1 out of 8 life insurance participants in medium and large private establishments was required to contribute toward the cost of coverage.(19)

Other significant boosts to employer-provided life insurance occurred in the late 1930's and early 1940's. First, as indicated earlier, World War II saw the imposition of wage stabilization measures designed to curb inflationary pressures. As employees were required to accept limits on increases in their paychecks, they began to look towards group life insurance coverage and other employer-provided benefit programs as supplements to wages. The direct result of this was the increased provision of benefit programs, including group life insurance.

Also during this period, union membership expanded dramatically, and new or improved benefit plans were frequently requested as part of new labor contracts.(20) As this practice spread, some questioned the inclusion of benefit issues in the bargaining process. In 1948, a U.S. Court of Appeals ruling stated that the collective bargaining process could cover issues such as wages, hours, and "other conditions of employment."(21) With this decision, the right to include health and welfare benefit provisions in the negotiated contract was established in law. Today, the practice of including life insurance coverage along with standard pay has become almost universal among medium and large employers in the United States.