Life insurance is one of the most common employer-provided benefits. Though life insurance is an important asset for future financial security, many employees don’t realize its significance. Teaching employees about the value of life insurance may increase loyalty to your company as they better appreciate this benefit.
Employer-sponsored coverage can be offered in a variety of ways. Employers can choose between a term policy, permanent coverage or both.
- Term life insurance has a specified coverage period (term), but can usually be renewed or converted into a permanent policy at the end of a term. Premiums are generally affordable initially, but can increase substantially when renewed.
- Permanent life insurance is life-long coverage that generally also includes a cash value savings component. There are many types of permanent life insurance, including whole, universal and variable. This type of coverage has higher premiums, but offers more long-term value.
Cost-sharing among employers and employees also varies between organizations. Some employers cover the full cost, some require employees to pay the full premium and others split the cost with employees.
A common scenario among CanopyNation clients is a group-term policy, which is no cost to the employee and provides a coverage amount that is a multiple of their annual salary (usually one to five times their annual pay). Group-term policies often end when an employee leaves the organization (or passes away), but employees may be able to convert it to a permanent policy or renew it upon leaving. This is generally an affordable plan for employers to offer, though it does not offer as much long-term value to employees as a permanent plan.
Many employers who offer such a group-term policy also offer additional voluntary coverage options, in which the employee pays the full cost but still receives the benefit of group rates and payroll deductions. Additional coverages offered may include:
- Spouse/dependent life insurance in which group-term policies only cover the employee.
- Supplemental term life insurance for the employee to elect a higher amount than the employer offers.
- Supplemental permanent coverage, which provides a whole, universal or variable life policy in addition to the term policy.
- Accidental death and dismemberment (AD&D) coverage.
Premiums for life insurance offered by the employer are generally deductible as ordinary and necessary business expenses (unless the employer is the beneficiary of the policy). Additionally, the cost of employer-provided group-term life insurance is excludable from the employees’ gross income (up to $50,000 of coverage). However, the plan must meet special nondiscrimination rules or key employees may not be eligible to exclude the cost of their coverage from their gross income.
Showing life insurance’s value to your employees
Many employees do not realize the financial benefits of a life insurance policy until they think through life-altering issues. Ask employees to envision the debt and financial responsibilities that loved ones would face in the event of their death. If the employee is the primary household income, how will the family support themselves? If the employee dies and leaves behind a mortgage or substantial medical bills, who will have the burden of paying that debt? If you offer a permanent coverage option, explain the value of having the cash benefit component to the policy.
Emphasize to employees that buying life insurance on their own is costly. Even if your group coverage is employee-paid, you are still offering significant advantages:
- Lower rates through a group policy than if buying individual coverage
- No medical review required for group policies, as opposed to individual policies where an unfavorable medical exam could disqualify the individual or trigger extremely high premiums
- Be sure to inform employees on restrictions regarding this issue, such as a requirement to enroll when first eligible to avoid a medical exam.
- Convenience of payroll deductions for premiums
Educating employees on the benefits of life insurance in general and the advantages of purchasing through your group plan can help increase awareness and participation, boost loyalty, and support hiring and retention initiatives.
What to consider before offering life insurance as an employee benefit
When deciding to offer life insurance as an employee benefit, there are a number of factors to consider:
- What type of coverage will you offer?
- Will you offer term insurance, permanent or both?
- Who will be covered? Will you cover employees only or also retirees, spouses and dependents?
- Note: Only employees can be covered under a group-term policy.
- When is coverage effective? Will there be a waiting period?
- What amount of insurance will be available? How will that amount be determined, i.e., flat fee vs. multiple of salary?
- Will you, the employee or both of you pay the premiums?
- Will there be a minimum amount that employees are required to elect? What is the maximum coverage amount allowed?
Once you have an idea about the type of coverage you’d like to offer, CanopyNation can help you find a plan that meets your needs. To get started or for more guidance, contact us at email@example.com or 901-805-2860.