Using Life Insurance To Attract And Retain Gig Workers

Addressing the benefits gap in the gig economy

The rise of the gig economy has ushered in a new era of flexible work arrangements, allowing workers to choose their own paths and take control of their careers. However, as the gig economy continues to grow and thrive, it's become more than apparent that freelancers lack access to traditional workplace benefits. Among the missing benefits, life insurance stands out as a particularly crucial gap leaving freelancers without the protection they need.
 
For human resources (HR) managers, it might seem as though gig workers lie outside the purview of benefits. After all, gig workers are not, in most cases, considered employees but rather independent contractors. As such, they are not typically entitled to the same workplace benefits as an employee would. But I’d argue this is a perception that needs to be revised, especially as gig workers become increasingly accepted and embedded into the framework of how a company operates.

To that end, I believe there’s an opportunity here for HR managers to improve their gig worker attraction and retention rates by offering some competitive benefits. And individual life insurance can be a highly enticing benefit, particularly when paired with another form of insurance: indemnity. 

Combining Indemnity and Life Insurance

I expect that any mention of the word “indemnity” will make most HR managers run for the door, but just hear me out. Indemnity insurance gets a pretty bad rap from being heavily misrepresented as a form of health insurance by a few now-defunct carriers. That, combined with how aggressively indemnity insurance was pushed in people’s faces in the recent past, has soured its perception in the eyes of most HR managers. That said, I do think there's an argument for revisiting indemnity as a potential rider to a life insurance policy.
 
For those who don’t know, indemnity insurance is a type of insurance that offsets the financial losses of a policyholder. While there are many types of indemnity insurance, such as malpractice, liability, or deferred compensation insurance, I want to focus on two in particular. The first is loss of income coverage, which pays a portion of a policyholder’s salary during an illness or injury. The second is disability coverage, which is like loss of income, but also includes coverage for additional expenses like medical bills and mortgage payments.

Including these protections as riders on a life insurance policy is incredibly easy and offers exactly the sort of income security that gig workers desperately need. This is especially true with disability coverage, which can cover any out-of-pocket expenses that a worker has to bear due to a medical emergency. Just think what this kind of coverage would mean to gig workers when paired with a life insurance policy. They get peace of mind from knowing their loved ones are financially secure while also never having to worry about paying $5,000 out-of-pocket for their next hospital visit.

This sort of supplement to an existing policy is actually what the older types of indemnity policies tried to do. However, those indemnity plans turned out to be a joke, providing only a pittance of, say, $50 for a broken arm, which is not even enough to cover the cost of getting to the emergency room. What I’m suggesting is that we tie the payout to the diagnosis and, technically, to the diagnosis under the U.S. codes, which has a severity index linked to it. 

That way, you can provide payouts that are equal to what a person needs, be it $1000, $2,500, $5,000, or whatever it might be. In addition, the policyholder also gets income replacement features and death benefit features all in one policy. This is why I believe indemnity is the way to go, as it covers the living needs of a worker while still giving them the benefits of a life insurance policy.

Leveraging Employee Data

Of course, any talk of offering individual life insurance to a gig worker will raise the intimidating question of how to underwrite them. Many people still believe that underwriting an individual policy can take six weeks or more and involve numerous medical tests. And to be fair, that is still the case with carriers that haven't yet digitized their operations. But the good news is that this is changing as more carriers recognize the power of big data and how it can expedite the underwriting process.

Provided a carrier has access to a gig worker’s first name, last name, street address, and zip code, it’s not hard to find their medical and financial data for underwriting an individual policy. All told, it can take as little as a few minutes to underwrite someone once all this data is assembled. That’s a huge difference from what it previously took and opens the door to easy underwriting for all gig workers. 

What's more? Companies will, at the very least, have a gig worker’s billing data. That’s enough for a carrier to work with. There’s also no need for a company to worry about breaking the Health Insurance Portability and Accountability Act (HIPAA) regulations since gig workers are classed as independent contractors, meaning most of HIPAA won’t apply to them. Besides, even if a gig worker were classified as an employee, HIPAA still allows companies to use employee data provided it’s for the benefit of employees and serves a legitimate business purpose. 

Giving Gig Workers Flexibility

The great thing about combining indemnity coverage with life insurance is that there’s almost no end to how each policy can be customized. Coverage can take on any variation of a term or permanent policy, with indemnity coverage attached as a rider. It really doesn’t matter what the policy type is since the underwriting is exactly the same.
 
With that in mind, HR managers can utilize big data to understand the specific challenges that freelancers face in various industries or roles. Armed with this knowledge, HR managers can then work with different carriers to create flexible life insurance benefits tailored to each gig worker’s needs. And working with multiple insurers will be crucial since carriers that are doing life insurance are not typically the carriers that are doing indemnity coverage. As such, some sort of partnership might be needed, which the carriers will be more than happy with since it means more business. 

Conclusion

The gig economy has reshaped how we work, prompting a need to reevaluate how traditional benefits are offered. By combining indemnity insurance with life insurance, HR managers can provide their gig workers with enticing benefits packages that fit their distinctive work arrangements. It only remains for HR managers to put these packages together by collaborating with the right insurers.

Bob Gaydos is the Founder & CEO of Pendella. Over the last 10 years, Bob has founded, invested, advised, and operated innovative companies in the benefit & insurance industry.