Life insurance is a plan that gives a tax-free lump sum of money to your chosen beneficiaries if you pass away while the policy is active. Finances are the last thing a family wants to worry about after a devastating loss, and life insurance can help ensure that a family can cope. There are numerous types of life insurance, with an even greater number of variations. To better comprehend group term life insurance, let’s break down the various components:
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Group |
Term |
Life insurance |
|---|---|---|
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Some policies cover multiple people, usually offered by a company or organization such as an employer or union. |
Term life insurance only provides coverage for a set period, unlike permanent plans like whole life insurance. |
When the insured person dies, the policy pays out a lump sum to the listed beneficiaries. |
Employee benefits packages frequently include group term life insurance, and employers can choose from a variety of payment mechanisms. In most cases, the employer takes care of the majority or even the full cost of life insurance premiums. However, some companies choose to share the cost with employees or make it completely optional, meaning employees pay the full amount. Offering life insurance as a benefit can greatly improve how employees feel about their job and financial well-being. Companies that don’t offer this benefit might struggle to attract and keep top talent.
Group term life insurance benefits.
The average coverage amount is equal to each employee’s annual income, however employers can choose other benefit levels. The benefit level can be set at a specific amount, such as $50,000. Extra coverage is frequently available if the employee is willing to pay the additional premiums. Eligible employees are instantly enrolled; there is typically no medical exam or underwriting.
How does group term life insurance work?
It’s quite straightforward, actually. All eligible employees begin receiving coverage soon after a firm or group acquires a policy.
The cost to the employer is usually a monthly or yearly premium, which varies depending on how many employees are covered and the type of coverage included. The corporation can establish eligibility requirements. Typically, every employee who fits the requirements is immediately enrolled in the base coverage, and employees can buy more coverage for an additional fee. Employees can make changes to their coverage during open enrollment or after major life events like getting married or having a baby.
Is group term life insurance taxable?
In many cases, part of the premium for group term life insurance is tax-free. This is another appealing advantage that you may provide to employees. Group term life insurance coverage of up to $50,000 per employee is usually tax-free, which makes it an attractive benefit for workers.
Employers who cover the cost of employee benefits may also qualify for certain tax incentives for their business. Consult a tax professional to determine what this means for your company and employees.
Advantages and disadvantages of group term life insurance
Group term life is one of the most popular ways to obtain life insurance, and it provides an excellent benefit. Typically, all qualified employees are automatically covered.
Advantages:
- Inexpensive for companies
- Various options to pay premiums
- All eligible employees automatically enrolled
- No underwriting
- Customizable benefit amounts
- Potential tax savings for employer-paid coverage
For many employees, group term life insurance is a valuable safety net. It may not be sufficient, however. Additional coverage may still be required, whether through the group term policy or an individual policy. Furthermore, because the employer provides group term life insurance, employees who leave their jobs are likely to lose their coverage.
Disadvantages:
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Group life insurance coverage may not be available to all employees, especially those working part-time
- Lack of portability
- Some employees may need/desire additional coverage
Why should businesses offer group term life?
The quest for competent labor becomes increasingly difficult with each passing year, and businesses of all sizes are feeling the pressure. There is fierce rivalry for personnel across industries. Offering higher wages is one way to compete, but many businesses may struggle to remain profitable as a result. A better idea could be to provide a greater benefits package than your competitors. Employers are encouraged to include group term life insurance as part of their benefits package.
An important benefit for employees
Group term life insurance costs much less per person than identical individual policies. It offers important financial protection for employees—especially for those who might not be able to afford coverage on their own. Premiums vary according on the nature of employment and age of the employees, but they typically range between $0.05 and $0.60 for $1,000 of coverage per employee per month.
Let’s imagine you have 20 employees ranging in age from 25 to 45. Offering $100,000 flat-rate group life insurance would cost roughly $160 per month. This price may be within your budget given the benefits it provides to your employees and company.
Important financial security and peace of mind
Employees, particularly those with families, have overwhelmingly positive attitudes of life insurance as an occupational perk. Many people rely solely on employer-provided life insurance, making it a powerful retention benefit because coverage ends if they change jobs.
Recruit better talent
When questioned, 44% of all employees stated that having life insurance was very or extremely important to them or their family. 1 Including group term life in your benefits package will help you offer an appealing package and attract the best staff.
