Improving employees' life and disability insurance benefit decisions

Abstract

The group benefits landscape is changing dramatically. The menu of available options has expanded, employers are paying for fewer benefits, and the responsibility for selecting the right benefit package has been increasingly left to the employee. However, very little is known about how individuals select their insurance benefits packages, if their selections are optimal for their circumstances, or what employers can do to encourage them to select the optimal benefit package. In this changing landscape, it is important to determine identify: (1) What are current employer practices and their resulting take-up and coverage patterns?; (2) Which practices influence employees' selections?; and (3) What can employers do to make their employees' selections closer to their optimal choices? The current study is the third in a series conducted by the Center for Retirement Research (CRR), in partnership with Prudential Financial Inc., to examine these questions. The first study utilizes in-depth interviews to find that, despite the similarities between life and long-term disability insurance products, decision processes vary dramatically (Coe and Belbase 2012). Individuals understand the need for life insurance, but they have a hard time determining how much insurance is necessary. The need for disability insurance is even less clear – disability incidence and the insurance product are not well understood and prone to behavioral biases – and it is infrequently purchased. The second study uses an online experiment to identify behavioral-economics-based interventions that affect life and disability insurance participation and coverage levels (Coe, Belbase, and Wu 2013). The results suggest that simple, personally relevant information, provided at the time of enrollment, can nudge individuals to overcome behavioral impediments and elect more optimal life and disability insurance coverage. Unlike the first two studies, which focused on the employee's decision, the present study examines group benefits from the employer's perspective. Data on employer practices, benefit information, and aggregate employee characteristics are obtained through a firm-level survey conducted by the Society for Human Resource Management. Survey results are used to describe the landscape of employer practices with respect to supplementary life and disability insurance and to investigate correlations between employer practices (such as cross-advertising group benefits with health insurance) and employee take-up.