Many insurance experts advise purchasing life insurance equal to five to eight times the individual’s income. Offering group life insurance to your employees allows even employees with medical conditions to buy some life insurance protection.
There are two categories of life insurance: term and permanent.
Term life insurance provides pure death benefit coverage at group rates. Most employers offer term insurance in their basic benefits package. It provides financial protection for a specific time (one to 30 years), and gives a death benefit but no cash savings.
Permanent life insurance, or cash value, programs provide some additional benefits, including the tax-deferred accumulation of cash.
Term Life Insurance
Term life insurance comes in several varieties:
- Renewable. Policy owners can renew coverage at the end of their policy term without having to submit new medical information, though the premium rate will generally rise with each renewal.
- Convertible. A convertible policy allows the insured to convert term coverage into a permanent policy without providing evidence of insurability (usually a medical exam), in exchange for a higher premium, which remains fixed after conversion.
- Level. Level-premium policies have a fixed premium for a certain number of years (usually 10 or 20), while the death benefit remains unchanged. Although the rate locks in for the policy period, it can jump considerably upon renewal.
Permanent Life Insurance
Permanent life insurance provides lifelong protection and includes a savings element that grows on a tax-deferred basis and may become substantial over time. Premiums are generally higher than for term insurance, but they remain fixed.
All permanent insurance has a face value and a cash value. The face amount is the money that will be paid at death, while cash value is the amount of money currently available to the policyholder. Permanent life offers other benefits–purchasers can withdraw some of the money, obtain a loan using the cash value as collateral or use the cash value to pay premiums, provided there is enough money accumulated.
The different types of permanent life policies include:
- Whole or ordinary life. The face amount of the policy is fixed, while premiums remain level and must be paid on a regular basis. It offers a death benefit and a savings account, which grows based on insurance company-paid dividends.
- Universal or adjustable life. More flexible, employees can pay premiums at any time, in virtually any amount, and may change the amount of the death benefit, although an increase usually requires a medical examination. After accumulating sufficient funds in the cash value account, employees may alter premium payments, a useful feature if an employee’s economic situation has suddenly changed.
- Variable life. This policy combines death protection with a savings plan. Cash value will vary with the performance of the underlying investments, although some policies do guarantee a minimum death benefit.
- Variable-universal life. The employee has the investment risks and rewards of variable life insurance, coupled with the ability to adjust the premiums and death benefit available under universal life.
Group Voluntary Life Insurance
Life insurance is one of the most popular voluntary benefits. Employers can use voluntary life insurance as the company’s primary life insurance benefit, or to supplement basic employer-provided term insurance coverage.
With voluntary life insurance programs, the insurance carrier has responsibility for program implementation, communication, enrollment and administration.