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Age-related reductions in life insurance benefits.

Employer-sponsored life insurance is one of the most common benefits offered to workers today. More than 90 percent of full-time employees in medium and large private industry establishments received life insurance in 1989, either partially or wholly financed by their employers. About half of these workers participated in plans in which the life insurance benefit amounts decreased with age (typically beginning at age 65) while the other half had benefits unaffected by age. Plans with age-related reductions, however, usually offered higher amounts of life insurance before these reductions occurred than plans without reductions.(1)

For instance, the average benefit amount for a worker with 10 years of service, covered by a plan with age-related reduction provisions, and earning $35,000 a year, was $44,470. For the same worker in a plan without age-related reductions, the average benefit was $37,938. For a worker with 20 years of service, earning $45,000 annually, the benefit from a plan with age-related reduction provisions averaged $54,376. The benefit from a plan without reductions for that same worker was $46,117.

These findings are from an analysis of life insurance plan provision data obtained from the Bureau of Labor Statistics' 1989 Employee Benefits Survey.(2) In addition to tabulations based on all full-time workers, data are presented by three broad occupational groups - professional/administrative workers, technical/clerical workers, and production/service workers.(3)

The difference in benefit amounts between plans with age-related reductions and those without was often greatest for production/service workers. For instance, a professional/administrative worker with 20 years of service, earning $35,000 annually would receive $50,546 on average from a plan with age-related reduction provisions, and $46,082 from a plan without those provisions - a difference of $4,500, or about 10 percent. For similar production/service workers, the difference would be almost 25 percent - $39,343, compared with $31,507. Results for all occupational groups at various combinations of length of service and annual earnings are shown in tables 1 and 2.


Table 3 shows average amounts of life insurance benefits for older, active workers after reductions for age in plans with such a feature. In addition to being presented by annual earnings, the data are also reported for different ages.(4)


The average benefit for a 65-year-old worker with 30 years of service, earning $45,000 annually in a plan imposing benefit reductions, was $42,529 in 1989 (reduced from an average benefit of $54,434). At age 70, that worker would get $24,978 in life insurance protection, and at age 75, $21,057.

While participants in plans with age-related reductions on average received a greater benefit prior to any reductions, at the older ages these workers received a smaller benefit. For instance, a worker with 30 years of service earning %55,000 annually would average $54,305 in life insurance coverage from a plan with no age-related reduction provisions. This amount remained unchanged regardless of the worker's age. By contrast, if that same worker participated in a plan with reductions, the benefit would be $62,885 before age 65, but $48,997 at age 65, $28,771 at age 70, and $24,183 at age 75.

Computations for this analysis are from a computer model that compares life insurance plan provisions against various assumptions on employee earnings, years of service, and age. This model had previously been applied to 1988 survey data. The results of that analysis yielded information on average benefit amounts for all active workers and for older active workers at a variety of income levels. The analysis, however, did not contrast amounts of insurance in plans with age-related benefit reductions and those without such reductions.(5)

The Employee Benefits Survey publishes periodic bulletins containing data on the incidence and characteristics of employee benefits. Upcoming data will focus on small establishments and State and local governments. In each case, data and analysis on life insurance benefits will be presented, focusing on variations in benefit levels based on the existence of age-related reductions.


(1) Age-related reductions reflect the influence of the Age Discrimination in Employment Act, which bans mandatory retirement. As a result, employees may choose to work past the typical retirement age. To compensate for higher insurance costs due to the employee's decreasing life expectancy, employers may reduce the amount of life insurance offered.

(2) The survey provides information on the incidence and detailed provisions of employer-sponsored benefits; the 1989 results present representative data on 32 million full-time employees of private industry establishments, employing 100 workers or more. Key findings, including data on health care, life insurance, retirement and capital accumulation plans, and paid leave are reported in Employee Benefits in Medium and Large Firms, 1989, Bulletin 2363 (Bureau of Labor Statistics, 1990).

(3) Professional/administrative and technical/clerical workers combined are considered white-collar workers. By contrast, production/service workers are considered blue-collar workers.

(4) There were no differences in the average benefit amount due to length of service when age-related reduction provisions were applied.

(5) The original model for calculating life insurance benefit amounts was developed by Adam Z. Bellet. For background information and the results of his analysis, see Adam Z. Bellet, "Employer-sponsored life insurance: a new look," Monthly Labor Review, October 1989, pp. 22-28.
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Author:Hyland, Stephanie L.
Publication:Monthly Labor Review
Date:Feb 1, 1991
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