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Life insurance benefits in small establishments and government.

Income that a survivor receives following an employee's death may come from various sources, including employer-sponsored pension or survivor income plans, and Social Security.(1) This report focuses on potential payments an employee can expect his or her survivors to receive from an employer-provided life insurance plan. Data are from the Bureau of Labor Statistics 1990 Employee Benefits Survey.(2)

In 1990, employer-sponsored life insurance was provided to 64 percent of full-time employees in private small establishments, defined as those employing fewer than 100 workers, and 88 percent of full-time employees in State and local governments. The standard form of payment for group life insurance is a lump-sum distribution, frequently used to pay for funeral expenses and to make up for lost income.(3) Of employees with life insurance coverage, 60 percent of State and local government employees and 62 percent of small establishment employees had this lump-sum benefit specified as a flat dollar amount, for example $10,000. Thirty-nine percent of State and local government employees and 37 percent of small establishment employees had their life insurance benefit calculated based on earnings, such as twice their annual salary.(4)

The life insurance benefit available to an employee's survivor may be reduced as the employee grows older.(5) Age-related reductions were specified in life insurance plans covering 39 percent of full-time employees in small private establishments and 30 percent of full-time employees in State and local governments. In both sectors, 65 was the most common age to begin age-related reductions to a life insurance payment. For example, a plan might reduce coverage to 65 percent of the full benefit at age 65 and to 50 percent of the full benefit at age 70.

The average benefit for all full-time employees with life insurance in small establishments was $30,432, assuming an annual salary of $35,000. (See table 1). The corresponding average in State or local governments was $31,001.(6) (See table 2.) The average life insurance benefit rose as annual earnings increased, with the largest increases occurring when annual earnings were between $25,000 and $35,000.(7)

In the 1990 small establishments survey, 61 percent of employees with life insurance coverage did not have the level of benefit reduced as they grew older. For such workers with 10 years of service and annual earnings of $45,000, the average life insurance benefit was $32,751. (See table 1 .) Workers covered by plans that imposed an age-related reduction received an average benefit of $40,081.

Seventy percent of State and local government employees do not have life insurance benefits reduced due to age. Employees in this sector with no age-related reductions received a $33,473 average life insurance benefit with annual earnings of $45,000. (See table 2.) When an age-related reduction was imposed, the average benefit increased to $41,907.

The average life insurance amounts available to full-time employees in small private establishments and in governments were very similar, although there were differences by occupational group. In small establishments, the professional, technical, and related participants had the largest benefits available. For example, professional employees earning $35,000 had an average benefit of $42,019, more than twice the benefit for production and service workers. In contrast, all government occupational groups--regular employees, teachers, and police and firefighters--had similar benefits.(8) The average benefit for each of these groups was about $30,000 for employees earning $35,000 per year.

Life insurance benefit payments to older workers--aged 65, 70, and 75-also were analyzed. At age 65, the average benefit for all full-time employees in small establishments who had life insurance was $25,947, assuming $35,000 annual salary, compared with $30,432 before age-related reductions. Benefits continue to decline with increasing age, averaging a little more than $22,000 at age 75. (See table 3.)

For employees in plans imposing age-related reductions, the effects of the reductions are more pronounced. At an annual salary of $35,000, the benefit declines from $33,702 before reductions to $22,253 at age 65 and $12,243 at age 75. This compares with a $28,326 average benefit for employees in plans without age-related reductions--an average benefit that holds constant despite age. Similar patterns can be observed among State and local government employees with life insurance. (See table 4.)

The life insurance benefits presented in this report may be used to give employees an idea of their average level of survivor protection. The data indicate that benefits are influenced frequently by salary, age, and occupation. Additional data on life insurance and other survivor benefits are available annually from the Employee Benefits Survey.


(1) For further information on survivor income benefits see David E, Ott, "Survivor income benefits provided by employers," Monthly Labor Review, June 1991, pp. 13-18.

(2) The Bureau of Labor Statistics Employee Benefits Survey provides annual data on the incidence and characteristics of benefits offered to employees in the United States. The 1990 Employee Benefits Survey was conducted in small private establishments (those with fewer than 100 employees) and in State and local governments. The data from these two sectors represent 45.4 million full-time employees.

(3)Fundamentals of Employee Benefits, 4th ed. (Employee Benefits Research Institute/Education and Research Fund, Washington, 1990), p. 233.

(4) These data were first produced in 1989 for employees in private establishments employing 100 or more workers. See Adam Z. Bellet, "Employer-sponsored life insurance: a new look," Monthly Labor Review, October 1989, pp. 22-28. Also, see Stephanie L. Hyland, "Age-related reductions in life insurance benefits," Monthly Labor Review, February 1991, pp. 36-38.

(5) The Older Workers Benefit Protection Act (P.L. 101-433) amended the Age Discrimination in Employment Act to allow an employee benefit plan to provide a lesser benefit to older workers if the reduction was due to the higher cost of providing the benefit.

(6) All calculations assume 10 years of service. However, service will have little or no influence in many calculations in this model. Life insurance plans calculated based on service accounted for less than 0.5 percent of participants in both sectors.

(7) These findings are from a model used to project life insurance benefits based on selected ages, length of service, and annual earnings.

(8) Regular employees included professional, administrative, craft and repair, inspectors, service, and other related occupations.
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Author:Grossman, Glenn M.
Publication:Monthly Labor Review
Date:Oct 1, 1992
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