If you chose c, you're not like most Americans. Recent economicstress has driven life insurance ownership to very low levels, says Todd Katz, executive vice president forinsurance products at New York-based MetLife. According to a recentMetLife study of employee benefit trends, 30 percent of Americanhouseholds have no life insurance coverage at all, and the averageU.S. household owns enough life insurance to replace just 3.6 yearsof income.

“The economic downturn has definitely put more challenge in ourbusiness,” agrees Pat Murphy, president and general manager forlife and disability products at WellPoint, based inIndianapolis.

Stressed companies move prices higher

Insurance consumers aren't the only ones feeling economicstrain, of course. Insurance companies are under stress, too.

“I think the companies are still feeling the impact of theeconomic downturn, and that's showing up in financial strengthratings,” says Tony Steuer, a life insurance analyst in Alameda,Calif. Insurance companies are typically restricted to investingpremium dollars in highly rated debt instruments. As a result, theinsurance industry is heavily invested in Treasury bills andrelated U.S. government securities, and is vulnerable to thespecter of a U.S. government default, which would force downratings for both U.S. government debt and insurance companiesthemselves. “The fear is that, long-term, the insurance industry ison a negative ratings trend,” Steuer says. “There's a concern abouthow solid the industry will be in the future. That's not yetshowing up in pricing, but it may.”

Historically low interest rates, on the other hand, arecurrently affecting some life insurance pricing. Insurance productpricing is based on predicted costs of insurance, lapse rates andinvestment returns, so policy performance suffers when rates ofreturn are lower than predicted. Universal life policies have beenhit hardest by lower returns, Steuer says, but other policies areaffected as well.

At the same time that insurance policies as a group havesuffered from low investment returns, variable and equity policyreturns have been hurt by stock market underperformance. “Somecompanies have minimum payouts, and lower interest rates mean thatthey have to make up the profit somewhere,” Steuer says.

Insurance firms have also felt pressure from a trend towardpolicyholders selling their policies on the life settlementmarketplace. Third-party purchasers almost keep the policies theybuy in force, and that skews lapse rates upward, a change that alsocosts insurance companies deep in the pockets. “That impacts thepricing across the board,” Steuer says.

Something's got to give, and that something is typically eitherpremium level or term length. “Some companies have sent out 'headsup' letters asking clients what they want to do, but the industrydoesn't generally give heads up about underperforming policies.Some people are going to have a lot of unpleasant surprises,”Steuer says. They may either pay higher premiums or see policiesterminate prematurely, a choice that only increases their financialstress.

Changing with the times

Despite increasing costs and decreasing terms, life insurance isstill a popular group benefit with employers and employees. “Duringthe economic crisis, people were very happy to have a job. Theystill are happy to have a job, but given that salary increases havenot been all that great, benefits programs are more important” as away to attract and retain employees, Katz says. Moreover, peoplewho are happy with their benefits are typically happier at work,and therefore more productive—important at a time when firms arelooking closely at ways to maximize worker productivity, headds.

Federal health care legislation may also make group insurancebenefits more important, Murphy predicts. If many employees buymedical insurance through health insurance exchanges, employers will need to offer other benefits asrecruiting and retention tools. Life insurance could fill thatgap.

Many people get life insurance through their employers, Katzsays, and often feel good about the product's convenience and easeof purchase—and about the due diligence they assume their employershave done. Unfortunately, many employees don't buy enough insurancethrough their employers, nor do they always buy the right kinds ofinsurance. They often don't have enough portable, permanentcoverage to protect their families in case a breadwinner dies aftera layoff or job change.

“I still find that too many individuals rely on group terminsurance as their only coverage,” says Diana Scheel, a financialadviser with Sapient Financial Group in San Antonio, Texas.(Sapient is a general agency of Mass Mutual.) She notes that jobsare becoming more transient, with fewer and fewer people spendingdecades working for a single company. “When they leave a job, thecoverage goes away. The new employer may or may not have coverage,and the worker may not be healthy enough to buy a policy on theirown,” Scheel says.

To address that, some companies have begun to provide portableinsurance, particularly for key people within a firm. An employerpays the premium and takes the resulting tax deduction, Scheelsays; an employee handles the benefit as a 162-form bonus.

Many experts think the trend toward permanent, portableinsurance will trickle down from the executive suite to the rankand file. But while businesses may be willing to pay for key peopleto have permanent, portable insurance, the trend toward askingemployees to pay for more of their benefits will probably hold whenit comes to permanent, portable insurance for regularworkers—particularly if premium levels continue to rise.

“I think we're going to see more and moreemployers move away from life insurance as an employer-paidbenefit, but offer workers the opportunity to sign up on their ownand get better group rates,” Murphy says. “We're seeing thevoluntary market become more and more important.”

When employers expect workers to pay for the group benefits theychoose, they often offer “a cafeteria of choices,” Katz says,instead of the single plan employees might get as an employer-paidbenefit. Some plans might be unique to a particular firm and itsworkers, particularly if the group includes many higher earners,foreign nationals, students, seasonal or part-time employees, allof whom can have particular insurance needs. “There's morecustomization than you might have seen five or ten years ago,” Katzsays.

Many choices might include such value-added extras as will andestate planning, estate resolution services, bereavement counselingfor children or adults, consultations with legal and financialprofessionals, identity theft protection, or travel assistance.

With more choices often come increased corporate communicationon the value of group benefits, as well as greater time and effortspent educating employees about different options. Some workers aregetting education from growing numbers of brokers who specialize inlife insurance. These professionals have realized that themarketplace boasts many experts on medical insurance groupbenefits, but comparatively few brokers with fluency in lifeinsurance group benefits. They're moving into that underservedniche.

Whether a broker specializes in life insurance or not, she or hewill probably hope that workplace education sessions will bring innew retail business in addition to group sales. MetLife, for one,is betting on it. “We made the decision as a company about twoyears ago to bring together our group and retail business, comingat this from a customer-centric perspective and not getting toocaught up in what's traditionally group and what's traditionallyretail,” Katz says. “Some people buy as much as they can at workbut maybe that's not enough, or they don't have the productflexibility they need.” Brokers can help fill these needs usingboth group and retail products.

Insurance as financialplanning

Increased product choice and flexibility can assist businessesand consumers who want life insurance primarily as a financialplanning tool. Businesses might buy life insurance on key people tohedge against the economic impact of a key executive's death. Firmscould also buy cash value life insurance as a business asset andborrow against it, investing the proceeds back into thecompany.

Employees might buy a life insurance policy as a way of fundinga trust, as a means of paying future estate taxes, as an investmentvehicle, or as a way of hedging against a particular concern.Guaranteed universal life, for instance, ensures that a policywon't lapse even if rates go down or there are other problems. Anequity-indexed annuity might help an older worker prepare forretirement, as might a Ten Pay policy, a whole life policy thatcharges premiums for just ten years. “These plans establish niceretirement values that can come back to you tax free,” Scheel says.“The policyholder retires and pulls out income as tax-freedividends, then takes a tax-free loan against the policy, lettingdividends pay the interest and paying off the loan with the deathbenefit when they die.”

Other policies combine benefits by wrapping together lifeinsurance and long-term care or disability coverage. “Long-termcare insurance can be expensive, plus people worry that they mightnot use it after spending a lot for the policy,” says Byron Udell,founder and CEO of AccuQuote, a life insurance brokerage firm inChicago. A rider lets the policy owner use as much—or as little—asnecessary of the policy's payout on long-term care insurance, thenleave the remainder to heirs as a death benefit.

Permanent life insurance products can help manage cash flow, andso can term insurance, which stays in effect only for the statedterm, often 15, 20 or 30 years. “Term insurance has gottendramatically better, stabilizing at much cheaper rates than in the1990s,” Steuer says. “It makes permanent insurance less important,and makes it harder to sell permanent insurance. As more and morepeople become financially savvy, you'll see the ratio of termpolicies sold to cash value policies increase. ”

With life insurance types for virtually every need and employersmaking it easy for workers to shop for and buy coverage at theoffice, workers seem to be set—as long as their personal budgetscan hold out.