Group life insurance policy is an important benefit that many businesses offer their employees as an independent perk or part of a cafeteria plan. A group life insurance policy assures employees of their family’s financial stability after their death. Businesses also prefer group life insurance as it is cheaper than purchasing retirement or health insurance plans.
What is group life insurance?
Group life insurance policies are like any other life insurance policy, with the difference that your business will be the policyholder paying the premiums for the employees. The employees nominate a beneficiary – usually spouse, children or another family member – to receive the benefit after their death. Group life insurance supplements an employee’s personal life insurance policy.
Group life insurance policies are term policies. This means that the policy covers the insured only till they are employed with your business. Once they retire or take a leave of absence, the coverage becomes void. Businesses can choose to reinforce a basic policy by adding provisos to cover spouse or children and payouts for incapacitating accidents.
Small businesses usually offer basic group life insurance plans. The cost of any additional coverage is borne by the employees themselves.
What should a group life insurance policy cover?
As a business owner, you need to think about group life insurance to cover your employees. There are a range of policies with varied prices and coverage levels. You need to look for a policy that suits your business size, needs and budget. The smaller a business, the higher will be the insurance premium.
Small businesses can go with a basic group life insurance policy that offers a benefit equivalent to an employee’s yearly salary or a minimum of $10000 per year. Employees can choose to supplement their coverage up to four times on an additional cost.
The policies for offering coverage to exiting employees vary across states. Some states require that you offer employees the option to continue their life insurance policy by paying premiums to the insurance company directly.
How much will a group life insurance policy cost your business?
In group life insurance policies, the premium is not determined on the basis of the employee’s medical health. The employees’ risk factor is determined by considering variables such as sex, age, and salary of the employee. The risk factor is averaged out to calculate the premium your business should pay the insurance company. Another important element in determining the premium is the business type. For example, a medical billing service has a lower risk factor than a manufacturing business.
Businesses need to pay some amount per $1000 of benefits paid out if the employee dies. This amount can vary from 10-25 cents per $1000. The insurance company will send you a monthly bill for a lump sum that totals up the individual employee premiums for that period.
How to purchase the policy?
You can take out a group life insurance policy from an insurance company directly or through the services of a broker. In either case, the first step is to ensure the agent or insurance company is licensed to sell life insurance. This can be verified from the state insurance department.
There are some advantages to using a broker. They can provide a comparison of policy costs across various insurance companies, clarify doubts, and provide detailed information as requested. In addition, you don’t have to pay anything to a broker since they get a commission from the insurance firm they represent.
An insurance company can also assist your business by offering your employees the option to take out individual life insurance policies when they roll out the group life insurance plan. They may also advice you to take out a key man life insurance policy to protect your business. Under this policy, the life of people critical to the business is insured and the business is the beneficiary.
As the business owner, you must reevaluate the group life insurance policy annually. Changes in the workforce count and age averages can change the premium. Employees should be educated on the benefits and limitations of the policy and be encouraged to purchase individual life insurance policies for maximum financial stability.