Life insurance benefits for retired workers

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

When life insurance protection was reduced once after retirement to a percent of prior coverage, 50 percent was the most common reduction, and it was rare for such benefits to be greater than 50 percent of that provided during active employment. In fact, participants in these plans often received no more than 10, 20, or 25 percent of prior coverage.(8)

In plans with multiple reductions in retiree benefits, coverage was typically lowered each year after retirement for a set number of years, or lowered as retirees reached specified ages. For example, if an employee retired at age 65, the following schedule of reductions to active employee life insurance benefits might apply:

  Percent of
                               preretirement
    Age                           benefit
    65                               92
    66                               84
    67                               76
    68                               68
    69                              *60
(*) But not less than $5,000.

Employees with life insurance coverage that is reduced more than once after retirement frequently had a minimum benefit amount or final percentage specified by the plan.(9) Minimum amounts were either a flat dollar amount, such as $5,000, or a percent of preretirement coverage. While final percentages varied widely, common figures were 25 and 50 percent of preretirement coverage. Retiree-active employee coverage Just as plans may reduce the amount of life insurance protection available to retirees, reductions may also be imposed upon the benefits of older active workers. (See table 6.) Such reductions are related to the increased costs of insuring older workers.(10) How do these reductions compare with those imposed on retiree benefits? A look at life insurance participants in plans that reduce benefits for older workers as well as retirees shows variations in the reduction provisions. While active workers often face gradual reductions, the same workers, when retired, frequently have their benefit reduced once, to a flat amount or a percent of prior coverage.

Some similarities are observed among plans that reduce both active employee and retiree life insurance benefits gradually. For example, both reductions may be a percent of current protection-such as 10 percent-each year until a minimum level is reached. Other survivor benefits If life insurance is terminated at retirement, the retiree is often given the option to convert existing employer-financed group insurance to an individual policy paid for by the retiree. This conversion is generally permitted without any requirement that the retiree provide evidence of insurability (such as passing a medical examination to the satisfaction of the company). Usually, if, within 31 days after life insurance terminates due to retirement, written application is made and the first premium is paid, the retiree may convert all or a part of the amount of life insurance in force immediately before retirement to an individual policy. Premium payments then become the responsibility of the retiree.(11)