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Life Insurance Options for Small Businesses

Small business owners looking to attract and retain the best and the brightest employees can offer group life insurance as a supplemental employee benefit. And while offering extra benefits entails paying more in costs for employee coverage, group life insurance plans are considerably less expensive than what employers pay for medical or retirement plan packages. The types of coverage offered may depend on the type of business an employer runs.

Additional benefits, like group life insurance coverage, can be a great retention tool for small business owners.

Group Life Insurance Benefits

Employees hardly ever turn down the opportunity to participate in employer-sponsored group life insurance plans. Statistics from the Bureau of Labor Statistics in 2009 show that out of the 62 percent of workers with access to life insurance benefits, as many as 60 percent participate in their employer plan.

Small businesses with at least 10 or more employees can offer group life insurance at relatively low costs. Business owners with less than 1,000 employees may want to consider going through an independent insurance broker in order to find the best plan rates and coverages.

More oftentimes than not, group life benefits are offered as part of a menu plan, which allows employees to choose different types of benefits. A menu plan may list group life insurance in addition to long-term or short-term disability and group health insurance.

Employers Costs

Coverage costs for group life insurance for a small business will depend on –

  • The type of business
  • The number of employees
  • Gender ratio of employees (number of males vs. number of females)
  • Average age range of the employee group

The type of business affects the amount of risk an insurer takes on when underwriting a plan, so a business that specializes in window-washing will pay more in premium rates than an office-based business.

As a supplemental benefit, small business owners usually foot the entire bill for group life insurance benefits, so employees pay nothing out-of-pocket. Employers typically pay a set premium amount for every $1,000 worth of insurance coverage purchased. So, an employer who pays 10 cents for every $1,000 of a $20,000 death benefit (for each employee) will pay $2 in premium costs per month for each employee.

Employee Coverages

In most cases, employees who opt-in to an employer-based group life plan receive guaranteed issue coverage. This means employees don’t have to undergo a medical examination in order to qualify for coverage.

Their safety; your peace of mind.

Employer-sponsored group life coverage generally provides a death benefit of up to $10,000 or one year’s salary for each employee depending on how the plan is set up. And while these benefit amounts provide some financial protection, these amounts are not enough to provide ongoing financial support an employee’s dependents. As group life insurance is only intended to provide supplemental coverage, employees should consider having a primary life insurance plan in place in addition to an employer-sponsored plan.

Employee eligibility depends on a person’s employment status at the time the employer takes out a group life plan. This means, employees who are on leaves absence or disability leaves are not eligible for coverage until they return to work. On the other hand, employees with known chronic conditions, such as cancer are eligible for coverage provided they maintain an active employment status with the company.

Types of Policy Coverages

Small business owners can select from a wide variety of policy coverage options for group life insurance. Group life plans are typically offered as term life policies, which provide insurance protection only. Term life is the least expensive group plan option

Employers can also purchase group universal life coverage, which includes a savings account benefit along with the insurance protection. This means an employer pays an additional premium amount towards the savings portion, which becomes a type of supplemental retirement plan for employees.

Employers may also want to include a “voluntary group life” option that allows employees to purchase additional coverage on top of group life plan benefits. In effect, employees can purchase additional life insurance at group rate prices, which run considerably lower than an individual life insurance policy. Depending on the insurance carrier, employees who opt for voluntary group life may be required to take a medical exam and provide “proof of insurability” in order to qualify for extra coverage.


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