Are Your Benefits Enough to See Employees Through a Crisis?

Middle-class families — those with incomes of between roughly $50,000 and $180,000 per year (depending on where they live) — are becoming increasingly reliant on workplace benefits to ensure their financial well-being in case of a disability or critical illness.

Simple health insurance is insufficient to carry the load. The loss of a breadwinner’s or caregiver’s financial contribution through death or disability is often devastating.

A recent survey by benefits provider Guardian indicates that families in this category are struggling when it comes to achieving their financial goals. Of those workers surveyed only half believe they would be able to manage if the household lost an income due to death or illness. 

Caught in the middle

Families with incomes significantly above $100,000 per year are generally able to create at least some financial cushion against the possibility of death or disability. They also receive a good deal of advice from financial advisors, accountants and insurance agents in managing their financial affairs.

Working class families – those with incomes below about $50,000 – are often able to access various parts of the social safety net in times of crisis.

The “middle market,” in contrast, must make do without the advantages of the more affluent, with fewer privately owned insurance products and services, and without the same access to the social safety net afforded to working-class families.

Workplace benefits are critical

According to Guardian’s researchers, the middle-market population is overwhelmingly reliant on the quality and breadth of the benefits they receive at work, over and above cash compensation.

Over 80% of middle-market respondents report that they got their health insurance, disability insurance and retirement plan all through their employer.

Meanwhile, six in 10 have no life insurance in place outside of the workplace. This means that the solid majority of working families are relying entirely on workplace benefits to see them through the death of a family breadwinner.

And in the event of disability ending a breadwinner’s income, the situation is even more dire: Only 7% of the middle market owns any kind of disability insurance protection, outside of what they can access via their employer.

Are life insurance benefits adequate? 

For young families, the primary role of life insurance is to replace the income of a deceased breadwinner. But many employers cap life insurance benefits at $50,000 — the maximum figure that allows employers to deduct premiums as a workplace benefit under IRC 7702.

The actual need for many of these families is several hundred thousand to a million dollars, and occasionally more. That’s what it takes to replace the income of a worker who earns $50,000 to $100,000 per year until the children are out of college and a surviving spouse is taken care of.

The cap on group life insurance is often not enough to help a family who loses their breadwinner, and the coverage should be considered a stopgap for a more robust life insurance policy purchased in the private market.

What employers can do 

One solution is to offer voluntary benefits to workers. These include a menu of benefits, such as:

• Group life insurance
• Group disability insurance
• Long-term care insurance
• Critical illness coverage

Often, many of these benefits can be offered at little or no cost to the employer.

Premium costs are simply deducted from the worker’s wages and forwarded to the insurance company via payroll deduction. In this way, workers can purchase much more coverage and provide protection for their families – and it doesn’t cost the employer a dime.

In some instances, it can even save on payroll taxes.

To learn more, call us.