HR Mavericks

Eddy’s HR Mavericks Encyclopedia

Life Insurance Policy Benefit

Many organizations offer employee benefits such as medical, dental, and vision. However, have you considered offering life insurance as a benefit? In this article, we will explore what life insurance is and whether or not your organization should offer it.

What Is Life Insurance?

Life insurance is an insurance policy that offers financial support to those individual(s) designated as beneficiaries in the event of the death or catastrophic illness of the insured.

Should a Business Offer Employees a Life Insurance Benefit?

Offering benefits such as life insurance is contingent upon several factors, such as the financial health of your organization and the desires of your employees, as discussed below.

The Pros of Offering a Life Insurance Benefit

There are several reasons why your organization might want to offer life insurance, including recruiting and retention. Employee turnover. Benefits matter. A 2021 MetLife study found that 61% of employees polled stated that life insurance was a must-have, while 30% reported it was nice to have. By offering life insurance as an added benefit, employees are more likely to be satisfied and less likely to seek employment elsewhere. Recruitment. A 2018 SHRM Employee Benefits Survey found that organizations that incorporate benefits have above-average effectiveness in recruitment and retention compared with organizations that don't.

The Drawbacks of Offering a Life Insurance Benefit

A drawback of offering life insurance is that rates usually increase based on age. Furthermore, the amount offered may not provide sufficient coverage. In addition, the benefit typically ends upon termination. Often former employees find it difficult or too expensive to obtain continued life insurance outside of the workplace.

Types of Life Insurance Policy Benefits

There are several types of life insurance. The most common are term, whole, universal, variable, simplified issue, and guaranteed issue life.

Group Term Life (GTL)

Typically offered to employees of an organization, GTL is a type of insurance offered to a group of individuals, from employees to labor unions. GTL is normally offered to employees at no cost and is relatively inexpensive for the employer. The death benefit, however, is usually minimal, such as 1x the employee's annual salary up to a certain dollar amount (e.g., $50,000). GTL premiums are not tax-deductible for employees. In addition, your organization may provide the option to employees to purchase supplements for a spouse, partner, and children at a lower cost if purchased by the employee.

Whole Life

Whole life insurance offers a death benefit and a cash value. Death benefits are paid to beneficiaries when the insured person passes away. The cash value component is a tax-deferred savings account that the insured may access while still alive. This type of insurance typically lasts until death, so long as premiums are paid. The coverage amount is fixed and the benefits do not change as the insured grows older. The benefits of offering this type of insurance are guaranteed coverage, family options, additional payments for covered accident-related claims, and early payouts for terminal illness.

Universal Life

Universal life insurance (UL) is permanent and also includes an investing option. This type of policy accumulates a cash value: a portion of the insurance that can be used for loans or cash. UL premiums are applied to the cost of insurance and investments that accumulate cash value. An advantage of offering this type of insurance is that the premiums are inexpensive and employees can adjust their premiums and death benefits.

Variable Life

Variable life insurance is a riskier type of permanent life insurance. Payout amounts are based on the performance of securities embedded in the policy. There is a tax advantage in that whether the investments perform well or not, growth of the cash value is not taxed as ordinary income. These types of policies require filing with the Securities and Exchange Commission. In addition, the insured can choose one of two death benefit options, a level death benefit, the payout amount of the policy, and a face amount with cash value.

Simplified Issue Life

Simplified life insurance requires minimal health screening. This type of insurance is attractive to those who require immediate coverage but do not wish to complete a medical exam. The advantage of offering such a plan is that coverage is provided within days versus weeks; however, premiums may be higher.

Guaranteed Issued Life

Guaranteed issue is a type of permanent life insurance offered without a medical exam. Coverage amounts are typically lower since a medical examination is not required. Ideally, coverage is offered to those who normally would not qualify for other types of life insurance due in part to their health. This is typically offered to people between 40 and 50; those over the age of 80 are not eligible. These types of plans are more expensive.

How to Offer Life Insurance Policy Benefits

Like any other benefit, you will want to consider the following when offering life insurance benefits to your employees.

Step 1: Review Your Organization's Goals and Objectives

Reviewing your goals and objectives allows you to determine your why. Are you trying to attract new and retain current talent? Increase productivity?

Step 2: Review Your Budget

Reviewing your budget will help you decide how much of your benefits budget you can allocate to life insurance.

Step 3: Work With an Insurance broker

Work with an insurance broker. Brokers have access to multiple insurance carriers and can quickly match you with plans that meet your organization’s needs. In addition, your broker can assist in other areas, such as submitting claims.

Step 4: Provide Options

Keep in mind that one size does not fit all. You may want to provide an array of life insurance benefits.

Step 5: Review the Perks

Many insurance plans offer perks, such as Employee Assistance Programs (EAPs). Perks are valuable because they expand the range of benefits you offer.

Step 6: Communicate the Benefits

Review and/or create a communication strategy to make sure your employees are aware of the benefit. Your communication strategy should use language that shows your commitment to your employees' well-being.

Step 7: Measure Employee Satisfaction

Measure your employees' satisfaction with each benefit you offer to be sure you are putting your benefit dollars to the best use.
Wendy N. Kelly, MSHRM, PHR, SHRM-CP

Wendy N. Kelly, MSHRM, PHR, SHRM-CP

Wendy is an HR professional with over 10 years of HR experience in education and health care, both in the private and non-profit sector. She is the owner of KHRServices, a full service HR management agency. She is also SHRM and HRCI certified, serves as a HRCI Ambassador, and voted 2021 Most Inclusive HR Influencer.
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