Life insurance benefits for retired workers

Monthly Labor Review, Sept, 1990 by Margaret Simons, Cynthia Thompson

continuation of life insurance protection beyond active employment is one of the many concerns of employees approaching retirement age. For slightly more than half of all full-time employees in medium and large private establishments who have employer-provided life insurance protection while working, such coverage ceases at retirement. Many employers, however, do elect to continue at least a portion of life insurance coverage for retirees, providing some income protection for survivors. This article examines the availability and details of life insurance benefits provided to retired workers.

Forty-two percent of all full-time workers who were provided life insurance as active employees had coverage available to them after retirement if they met plan requirements, according to the Bureau's 1989 Employee Benefits Survey of medium and large private establishments. Virtually all workers with retiree coverage had some reduction in the amount of insurance they would receive after retirement, however. The life insurance benefit was usually reduced either once (to a flat dollar amount or a percent of preretirement fife insurance), or gradually over a specific time period. Generally, the reduction began immediately upon retirement.

For all but a few employees with retiree life insurance coverage, the benefit was continued for life. The remaining fraction of workers had coverage continued until attainment of a specified age or for a given number of months after retirement.

Data for this article are from the Bureau's Employee Benefits Survey, conducted annually since 1979. The survey provides information on the incidence and characteristics of a variety of benefits offered to full-time employees. Benefits provided to employees in medium and large establishments were studied in each year except 1987, when benefits for State and local government workers were examined.(1) Extent of coverage In medium and large private establishments, life insurance protection for active employees is common, covering nearly all workers. However, the percent of life insurance participants offered retiree coverage has declined slightly during the last decade.2 In 1981, the first year for which such data are available; 64 percent of life insurance participants were offered retiree coverage. The comparable figure for 1988 was 58 percent.

The 1988 survey expanded into some smaller establishments and more service firms. Including these added firms, 49 percent of life insurance participants had retiree coverage available in 1988. By 1989, that figure had declined to 42 percent. (See table 1.) When survey data are compared by broad employee groups, little variation is evident in the incidence of retiree life insurance coverage among several broadly defined employee groups for each of the years shown.(3)

Life insurance benefits were provided to 85 percent of State and local government workers, according to the 1987 survey. This slightly lower incidence, compared with data from private establishments, is offset by lump-sum survivor benefits available in the retirement plans offered to many of the government workers surveyed.(4) Among life insurance participants, retiree coverage was somewhat more available to police and firefighters than to teachers and regular government workers (workers other than teachers and police and firefighters). The following tabulation indicates the percent of State and local government life insurance participants with retiree protection:

  All participants  ......................................... 55
           Regular workers      ................................ 55
           Teachers ............................................ 54
           Police and firefighters       ....................... 61

Details of retiree life insurance provisions are presented in the following sections. Unless otherwise indicated, data are from the 1989 survey of full-time employees in medium and large private establishments. Eligibility requirements Frequently, an employee had to meet an eligibility requirement to qualify for retiree life insurance. (See table 2.) Among such requirements were attainment of a specified age, eligibility for retirement under an employer's pension plan, and working for a stated number of years. Once eligibility requirements are met, retirees generally need only apply for coverage within the required time period in order to obtain protection. Coverage is provided without any requirement for the employee to take a preliminary medical examination.

Eighty-four percent of the life insurance participants in plans with retiree coverage had to satisfy specified requirements before their life insurance protection was extended into retirement. The requirement that was most prevalent was eligibility for benefits under the employer's pension plan: nearly half of the participants with retiree protection were in this category. (Pension plan eligibility requirements typically include attainment of a certain age, such as 60 or 65, and completion of a years-of-service period, such as 20 or 30 years.(5)) Another third of participants qualified by meeting specified minimum age and/or service requirements. A common requirement was a minimum age of 55 with 10 years of service; age 60 with 5 years of service was also common. A few plans imposed just a service requirement, while plans with only an age requirement were rare.