As the owner of a small business, should you be offering your employees life insurance? Here we look in a little more detail at life insurance and what types are available:
What is life insurance?
In the event of an employee’s death, life insurance pays the legally designated beneficiary a lump sum, and as an employer, this is an affordable and straightforward benefit that you can offer your employees.
What are the types of life insurance available?
There are 5 different types of life insurance plans; we’ll look at each one along with advice as to when it might be appropriate to offer it to employees:
- Group term life insurance
This cost-effective, simple and tax-free form of employer-provided life insurance is always a popular choice and can be set to last only for the duration of an employees paid contract with the business.
For a company with a workforce comprised of younger employees, this may not make so much sense, otherwise it can be offered by employers of businesses large and small to their employees.
- Permanent life insurance
These plans accumulate cash value over time and cost more than group term policies. While a good option for younger employees in good health, they can be expensive for older workers.
If your workforce is younger and highly compensated, then this type of insurance might be preferable to offer.
- Whole life insurance
In the case of an emergency, this kind of life insurance plan can also function as cash and covers the individual for their entire life provided the premiums are paid. That said, these plans are known to offer little return on investment for employers.
Whole life insurance is generally not recommended as an employee benefit.
- Variable life insurance
With this plan, part of the premium can be allocated to an investment account, and these can be made up of stocks, money market or bond funds. Like all investments, however, with fluctuating markets the value of the plan can decrease.
It’s advisable that employees themselves purchase this kind of insurance, and not for it to be offered as part of an employer benefits package.
- Universal life insurance
In much the same way as variable life insurance, this plan has a separate account that funds can be allocated to. With a savings component that can grow on a tax-deferred basis, it’s comprised of bonds, mortgages and money market funds as invested by the insurance provider. While variable life insurance does not have a guaranteed return of around 4% as part of the policy, universal policies do.
Again, it’s not recommended for employers to offer this as part of their benefits package, but rather for employees themselves to purchase it independently.
If you need more help, advice and guidance about selecting a life insurance plan for your employees, then reach out to a professional company who can give you their clear and unbiased opinion.