Why Canadian Business Owners Should Make Life Insurance Part of their Employee Benefit

A lot of employers offer life insurance as an employee benefit. A life insurance policy provides a lump sum for the employee’s beneficiary in case he dies in exchange for premium payments. This add-on benefit makes employers desirable for people who are looking for job opportunities, especially those who are thinking about the financial security of their loved ones.

Visit Save Corporation Tax to know more about life insurance as employee benefits.

Life insurance gives employees peace of mind in the event that their death will continue to provide their family’s financial needs. Employers have the option of offering life insurance to potential employees. There are several factors they have to consider first including who should be covered, what type of benefits to offer, and how much coverage is needed. While life insurance may be optional for employers, it is something they should consider.

Employers can possibly get lower rates when they are insuring a group of people and not just an individual. It is also an inexpensive add-on benefit that is valuable to your employees. In this article, we’ll discuss why employers should consider offering insurance as part of their employee package and how to do it.

The Benefits of Offering Life Insurance

As a business owner, there are many advantages to incorporating life insurance in your employee

• Ideal for employees who have families — Life insurance policy is valuable for employees who have loved ones who rely only on them financially. This is especially suitable for employees who live in a single income household.
• Affordable — Life insurance is affordable and valuable. There are different types of insurance products available but the most popular choice for employers is group life insurance.
• Simple and easy — Life insurance is a straightforward process that makes it easy to administer.
• Tax breaks — Life insurance is tax-free for business owners who provide coverage up to $50,000 for their employees.

Who Should Be Covered?

As an employer, you can determine who from your employees should receive the benefits of life insurance. Employers can offer group life term insurance to all the regular employees which provide lower rates with a bigger group and does not require individual medical check-ups.

Another option is a key person life insurance policy which can be offered to specific employees. However, the premiums of this type of insurance cannot be deducted for tax purposes unless under nondiscrimination requirements.

A nondiscrimination requirement discourages employers from offering life insurance specifically to high-earning employees which limits rank-and-file employees from participating.

Life insurance should benefit at least 70% of the employees and 85% of participating employees are not considered as key employees. Group term life insurance may be offered to employees based on marital status, compensation, job responsibilities, tenure, and health plan among many others.

Types of Life Insurance Employers Can Offer their Employees

Group Term Life Insurance

This insurance is the most popular type of insurance employers offer their employees. It is affordable, tax-free, and easy to administer. At the same time, employers can set the terms to make it effective during the employee’s tenure in your company only.

This type of insurance is beneficial. However, if the majority of the people working for you are young, it may not be ideal to offer this insurance.

Whole Life Insurance

This type of insurance can also be used as cash. It covers an individual’s life as long as the premiums are continuously paid. However, it may incur a low return of investment for employers.

Permanent Life Insurance

This form of insurance builds up cash value and is more expensive compared to group term insurance. Permanent life insurance is ideal for employees who are young and healthy as the cash value builds up over time. Employers should consider offering this to employees who are young or middle-aged.

Variable Life Insurance

What makes this insurance unique is that it allows you to use part of the premium paid as an investment. These investments can include stocks, bonds, and money market funds. However, the investment part can have a decrease in value, especially since it depends on the stock market. Hence, its better for employees to purchase this separately.

Universal Life Insurance

This type of insurance is somehow similar to variable life insurance. It has a separate fund for allocation. Universal life insurance also has a savings component that builds up based on bonds, money market funds, and mortgages invested by the insurance company.

The advantage of universal life insurance over variable life insurance is that it has a guaranteed return. Employees are also encouraged to purchase this insurance outside the employee benefits package.

Life insurance rider

A rider is an add-on feature that employers can purchase on top of an existing life insurance policy. Life insurance policies often come with various types of riders. A rider allows the employer to customize the employee’s insurance plan.

For example, you could add an accidental death and dismemberment rider to a group-term life insurance policy that would pay double the death benefit if the employee was killed due to an accident. Your insurance agent can explain the various riders you can get in conjunction with a life insurance policy.

Most life insurance policies offer a specific amount of insurance coverage which is usually around a $20,000 policy. Some insurance policies are computed based on the employee’s yearly salary with payouts that can amount to twice or thrice of the annual salary.

Options for Add-on Life Insurance

There are other types of policies that employers can offer on top of the life insurance policy.

• Group accidental death and dismemberment — This insurance add-on pays the death benefits to the beneficiary if the employee dies as a result of an accident or in case the employee becomes dismembered and loses an essential part of his body. This type of add-on can be valuable to employees who are working in a dangerous environment or industry that are exposed to physical risks such as construction or manufacturing.
• Business travel accident insurance — This add-on is ideal for employees who are often required to travel to conduct their business.
• Split-dollar life insurance — This plan is more applicable to key employees. This policy allows an employee to get a policy using the company’s funds which are invested. Upon the death of the employee, the employer gets back the premiums paid while the beneficiary of the plan receives the payout.

How to Offer Life Insurance to Your Employees

Once you decided which type of insurance to offer, there are several steps you’ll have to go through including the insurance provider and how to administer it. Here are some of the steps to follow.

• Find the right life insurance provider — Finding the right insurance provider is a crucial step for employers who want a hassle-free policy. Business owners can resort to a professional employer organization to find the best insurance provider or through a reliable insurance company or broker. Check out Save Corporation Tax and talk to a professional adviser.
• Select the eligible employees — Decide who of your employees are eligible to receive life insurance benefits. You may refer to the discussion previously mentioned on who should get covered.
• Administer it — Life insurance policies will require certain information from the employees including the following.
• Beneficiary — A policy requires a designated beneficiary who will receive the payout from the death benefit. In some cases, the policy allows several people as the beneficiaries in which the benefits may be divided upon the beneficiaries. The beneficiary should be updated from time to time to ensure that the designated person is still in line with the insured’s choice of beneficiary.
• Proof of insurability — For group term life insurance, the employees are not required to fill-up a health questionnaire which makes it easier for all parties.
• Processing the insurance claims — If case an employee dies, having life insurance in plan can help keep the workflow and business operations on the right track. It prevents the business from crumbling down, especially when a key employee who the company relies on for income suddenly dies. The employer will be the one to file the claim.
• Terminating life insurance benefits. — In case an employee decides to leave the company, those who are insured under a group term life insurance may or may not allow the coverage to be converted. This simply means that the employer can terminate the policy.

Bottom Line

Making life insurance part of an employee’s benefit can add value to your business and your employees. Since the plans are inexpensive, employers can pay for the policy and incorporate the plan in the employee benefits package. This additional benefit can be attractive, especially when you want to be able to hire the best people to work for you. This add-on is also ideal for employers who do not have any other benefits to offer.

For more details on this topic, get in touch with Save Corporation Tax.