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Why you shouldn’t rely on Life Insurance from your employer

Jun 10, 2019 | Information, Solutions

Employer Life Insurance

We often hear, “I don’t need to buy life insurance, I have a policy through my job.”

While employer-provided life insurance is a great benefit to have, it doesn’t provide employees with any guarantees.

What if you change jobs?

What if your company goes out of business?

Or worse, what if you find out your former employer has cut your life insurance when you’ve already retired? That’s unfortunately what happened to roughly 90,000 retirees who were employed and insured by Sears. The article below from Business Insider explains how the company made cuts and put the retirees in a complicated and unfortunate situation.

Employer-provided life insurance should only be viewed as a supplement to a life insurance policy purchased separately. There are numerous options to fit your lifestyle and budget. We are always here to answer any questions you may have.

Sears is reportedly slashing life insurance policies for some of its 90,000 retirees as the retailer continues to scramble

Sears is reportedly cutting its life insurance coverage for some of its roughly 90,000 retirees.

The National Association of Retired Sears Employees told CBS that the average age of affected retirees is 80.

Insurance expert David Paige told Business Insider that, as a result of their age and pre-existing conditions, many retirees will not be able to replace their life insurance.

Sears survived liquidation, but the same can’t be said for its retirees’ life insurance coverage.

CBS reported that some in the retailer’s pool of 90,000 retirees will now have to pay for their own life insurance polices, which were worth at least $5,000.

Sears did not immediately return Business Insider’s request for comment.

Insurance expert David Paige told Business Insider that the news isn’t good for retirees.

“The thing that is so distressing about this is that it’s probable that most, if not all, of them will not be eligible to buy replacement insurance,” Paige told Business Insider. “So they’re taking something away from them that in all probability they cannot replace.”

Paige told Business Insider that the employee benefit of group insurance is so “valuable” because it’s guaranteed, unlike a policy that you’d sign up for solo.

Unlike health insurance, life insurance has no rule stipulating that insurers can’t reject applicants for pre-existing conditions like illness. Paige said that the age of the applicants could also bar them from life insurance. CBS reported that the average age of the retirees is 80.

 


Related: How much life Insurance should I have?

 

This isn’t the first rumble of trouble regarding life insurance coverage for Sears retirees. Ron Olbrysh, a former Sears assistant general counsel who runs The National Association of Retired Sears Employees, previously told the Chicago Tribune that his fellow retirees were concerned about life insurance even before the company declared bankruptcy. Olbrysh didn’t immediately reply to Business Insider’s request for comment.

“If Sears does declare bankruptcy, the life insurance will not be secured and retirees would have the option of converting their life insurance to whole life but they would have to pay for it totally on their own,” he told the Tribune.

In the wake of the news, critics blasted the struggling retailer on social media, pointing out that Sears previously received court approval to dole out $25 million in bonuses to executives. Sen. Bernie Sanders called the decision an instance of “corporate greed.”

Olbrysh told CBS that NARSE was deciding whether or not to take Sears to court over the life insurance cuts.

“Whether they can get away with it or not has to do with the vagaries of bankruptcy law and how it works on benefits plans,” Paige said.

That takes into account the federal Employee Retirement Income Security Act (also known as ERISA), state law, and whether or not Sears’ policy was a term plan or a cash-value plan.

In a term plan, a person will pay a premium for coverage, which will last for a pre-determined term. In a cash-value plan, a person pays money that causes a “buildup” of value in an insurance plan.

“The cash value is considered by many jurisdictions as an investment,” Paige said. “The cash buildup inside of the policy is the equivalent of invested money.”

However, he also said that it’s rare to see a cash value element in group insurance plans.

This article is a repost from Business Insider and can be found here.

Want to know more?

If you have any questions about Life Insurance, please reach out to us at life@gasparinsurance.com or give us a call at 818-302-3060.