Benefits and Compensation

Do You Offer Life Insurance to Employees?

Insurance is one of the most common employee benefits employers opt to use to entice top talent to their organization. One such example is life insurance. It’s often quite affordable to provide because employers can get group discounts that are unavailable to individuals acting alone. Therefore, it provides coverage for employees at a lower premium even if the cost of the premium is passed along to the employee.

Employer Benefits of Offering Life Insurance to Employees

There are several reasons employers and employees alike benefit from having an employer-sponsored life insurance benefit. Here are a few:

  • Retention and recruiting. This is a benefit that can make an employer more attractive to employees.
  • Peace of mind. Employees can relax with the knowledge that their loved ones will receive the insurance benefit in the worst-case scenario. This alone can help positively impact employee morale, as it eases employee concerns on this matter (especially if this was something the employee otherwise could not afford).
  • Less expense. Employers can usually get good group rates for life insurance, making this a low-cost benefit even if the employer pays the full premium. If the employer opts to sponsor the coverage but have the employee pay the premium, it usually results in a situation in which the employee can get life insurance coverage for a much smaller premium than he or she could individually.
  • Tax benefits. The cost of the premium for the first $50,000 of life insurance coverage is not taxable income even if it is covered by the employer on behalf of the employee. (This is applicable as long as the benefit meets nondiscrimination requirements.)
  • Ease of access. Generally, group life insurance policies don’t require individuals to have physical exams, thus making it simpler for your employees to get coverage. The most that is usually required is a health questionnaire, but even that is often waived for group plans depending on the number of employees and coverage levels.

Like most employee benefits in the United States, life insurance is an optional benefit that some employers choose to offer for the reasons noted above. There are no legal requirements to offer such coverage, nor are there minimums or maximums on what can be offered. However, the plan must meet nondiscriminatory guidelines to qualify for the tax benefits we noted.

Considerations Before Offering Life Insurance as an Employee Benefit

There are many things to consider before offering life insurance as an employee benefit. For example:

  • Will you allow employees to purchase additional coverage (or raise the coverage level) beyond the baseline provided by the organization?
  • How will you transition the policy when an employee leaves the organization? Will you look for a plan that can be converted to an individual plan, or are you okay with providing coverage that employees cannot take with them if they leave?
  • How much of the premium will be paid by the employee, and how much will be paid by the employer?
  • What level of coverage should you offer? Should it be equal to the employee’s annual salary? Should it be equal to 2 years of salary? More? Or, will it be a set level for every employee with an opportunity to increase it at his or her own expense?
  • Will you offer additional benefits like accidental death and dismemberment insurance or coverage for family members? What about “living benefits” for employees who must leave the workforce due to terminal illness? Will you provide long-term care insurance? These additional types of coverage often go hand-in-hand.
  • Will all employees be covered? Will it be opt-in or opt-out?
  • Will the coverage be offered to all employees or only to specific groups such as full-time employees? Bear in mind that the cost per individual may be lower if the group size is larger, depending on what is available to you.

Does your organization offer life insurance as an employee benefit? Do you find most employees take advantage of this benefit? What other considerations were part of your decision-making process?

*This article does not constitute legal advice. Always consult legal counsel with specific questions.


About Bridget Miller:

Bridget Miller is a business consultant with a specialized MBA in International Economics and Management, which provides a unique perspective on business challenges. She’s been working in the corporate world for over 15 years, with experience across multiple diverse departments including HR, sales, marketing, IT, commercial development, and training.

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