Going Beyond Term Insurance Minimums
How to improve life insurance benefits for employees.
According to the U.S. Bureau of Labor Statistics, 60 percent of non-government employees have access to employer-provided life insurance, and 98 percent of employees who have access to plans take advantage of them. The low cost of the coverage for both employers and employees is one reason group life insurance is so popular.
Financial advisors warn, though, that low-cost employer-sponsored life insurance shouldn’t be employees’ only life insurance coverage. Fortunately, employers can offer additional, affordable coverage options.
Group life insurance
Most employer-sponsored group insurance is term life and expires when the employee leaves the company. The premium is covered in full or in part by the employer. Most policies offer a set amount of coverage, such as $10,000 per employee, or a coverage limit based on one, two, or three times the employee’s annual salary. A lump sum is paid to the employee’s beneficiaries if the employee dies while still employed.
Since the employer subsidizes or pays the full cost, many employees accept the coverage realizing that some coverage is better than none. Enrollment often is automatic.
Employers can take a tax deduction for providing group-term life insurance and the value of up to $50,000 in insurance is tax-exempt for the employee. To get the tax exemption employers must either have at least 10 full-time employees or provide coverage to all full-time employees.
Group life insurance is guaranteed issue, which means there is no underwriting. Underwriting is the process of assessing the risk associated with providing insurance coverage. For example, the more risk — or the more severe an individual’s medical condition — the higher the premiums. When a policy is guarantee issued, employees who are older or who have serious medical conditions will still qualify for coverage because there is no underwriting.
The disadvantage to this type of life insurance is that when employees leave their jobs, they no longer have coverage unless they go to another company that offers coverage. Sometimes a carrier will allow an employee to convert coverage under the group policy to individual life insurance, but the cost could go up significantly.
Another disadvantage is that the coverage might not be as much as the employee needs for their beneficiaries to cover necessary expenses.
Options for Fuller Benefit Packages
Your employees always can purchase individual life insurance to supplement what you offer if they have substantial life insurance needs, such as many dependents. However, they will not get the advantages of group purchase rates. Here are few examples of other types of group life insurance you can offer in addition to group-term life:
- Supplemental group life: Employees can buy extra coverage, sometimes up to three or four times their annual salary. Carriers will often offer guarantee issue up to a certain limit of coverage, but employees may need to fill out a health questionnaire or take a physical exam. Sometimes, individual coverage is comparable or slightly higher. If that’s the case it’s probably better for the employee to purchase their own individual coverage because they will still have the coverage even if they leave their job.
- Group accidental death and dismemberment: Beneficiaries receive a death benefit if the employee dies due to an accident. If an employee loses part of his/her body, such as an arm or leg, they may receive payment of a percentage of the total benefits.
- Business travel accident insurance: Beneficiaries receive a death benefit if the employee dies while traveling on business.
- Split-dollar life insurance: For key employees, both employers and employees pay the premiums. Beneficiaries receive a benefit if the employee dies and the insurance carrier returns the equivalent of the premiums paid to the employer.
Please contact us to get more details on how some of these options might benefit your employees.