The Value of Voluntary Benefits
As a small-business owner confronting the realities of a sagging economy, Steve Roper knew he had to cut costs someplace, and employee benefits were a logical target. But he was loathe to roll back coverage without giving his employees something substantial in return--a carrot to keep his core staffers content in their jobs, and one that might even add perceived value to their benefits packages at little to no extra cost to his company.
That's when Roper, himself a veteran workplace benefits broker and the owner of Roper Insurance & Financial Services in Denver, decided it was time to offer his employees voluntary benefits. Now, he says, more small business owners are following suit. "Lots of small companies are saving money by increasing deductibles on their health-care plans and offering voluntary benefits to bridge the gap."
Difficult economic times mean tough either/or choices for small-business owners. For many, adding voluntary benefits to compensate for cutbacks elsewhere in a benefits package or to enrich an existing core benefits plan--particularly one with a high deductible--makes more sense than making cuts in critical areas of a business, laying off key employees or losing them to a competitor with a richer benefits package.
Instead of paying for disability insurance, life insurance, dental insurance and the like as core employee benefits, small-business owners have begun to see the wisdom of providing those kinds of benefits on a voluntary basis, a la carte-style, where employees can pick and choose among them and pay for the ones they want and can afford. Not only does offering voluntary benefits cost small employers virtually nothing and help level the benefits playing field with larger companies, it also affords employees access to various types of insurance coverage, typically with looser underwriting requirements and at group rates that are "lower than if they went out and got coverage on their own," points out Bernard DiFiore, president of BenefitMall, a Texas-based benefits wholesaler.
This cost-conscious mind-set, heightened by the economic tailspin, has triggered a pronounced shift among employers from core to voluntary benefits, says John Roberts, president and CEO of Assurant Employee Benefits, which works primarily with small and mid-size companies. After a 30 percent surge in the fourth quarter of 2008, voluntary benefits now represent a one-third share of new premiums sold by the company, up from a one-quarter share a year ago. It may not be long, he adds, before that share swells to one-half.
Small businesses can use voluntary benefits as a magnet to draw and keep quality talent, says Debbie Stocks, principal at Your Benefits Partner, a brokerage in Glen Allen, Va. "Employers can say, 'As my employee, you can get this coverage, and get it guaranteed-issue, at a lower premium.' There is an advantage in that."
"A lot of companies have cut back their staffs, and they're down to the core group of people that are going get them through [the recession]," Roberts adds, "so they want to make sure that group of people is happy. Adding new [voluntary] benefits is a way to do that."
The challenge for small-business owners is figuring out which voluntary benefits to offer. "People are most interested in benefits they can see themselves using," Roberts says. "You don't want to try to sell employees on benefits that will cost them a lot of money. People are not compelled to spend a lot of extra money right now."
The first two voluntary benefits that Roper offered his employees were disability insurance and life insurance. Here's a closer look at the voluntary products that experts say are most popular and provide the most bang for the employee buck:
- Because it provides protection against lost income, disability insurance (short- and long-term) is perhaps the most popular voluntary benefit nowadays, Roberts says. "Instead of paying $100 a month for a lot of piece parts, like accident and hospital insurance, employees can pay, say, $30 a month for group disability and another $20 a month for group life insurance and still have $50 in their pockets," Stocks says.
- The financial security afforded by life insurance makes it an especially popular voluntary benefit in uncertain economic times. While term life is still most prevalent, a "flight to quality" among employers and employees is making permanent life insurance (such as universal life) more popular, Roper says.
- Voluntary dental insurance also holds great appeal for employees because, Roberts says, "you can design it so it's not very expensive."
- Relatively new among voluntary benefits, supplemental limited-benefit plans that provide a set dollar amount per day (typically $500 or $1,000) for hospital stays are gaining popularity, DiFiore says, as are gap insurance policies that pay a certain amount up to a deductible.
- More targeted in their coverage but also appealing, especially to small businesses with high-deductible plans, are supplemental accident insurance and critical illness insurance, says Melanie Barnard, an employee benefits consultant with GCG Financial in Greenwood Village, Colo.
Shopping list in hand, it's time to start assembling a voluntary benefits package. First order of business: Find a benefits broker who is objective, knowledgeable about the nuances of voluntary benefits and willing to tirelessly shop the market on your behalf. No sense in doing it yourself, Stocks says, when a broker can do it at no cost. "I'm not kidding you--it's a jungle out there. It's really helpful to have someone who understands this stuff."