If You Offer It, They Will Take It
Employees appreciate the value of group life insurance, as demonstrated by high participation rates. While 72 percent of full-time private industry workers have access to life insurance, 71 percent participate. Among part-timers, 13 percent have access and 11 percent participate in their employer’s plan. In addition, employees keep their life benefits. The American Council of Life Insurers reports that only 6.6 percent of group life policies in 2009 had voluntary lapses, or cancellations due to failure to pay.
What Employers Offer
In 2014, 61 percent of private industry participants had basic coverage equal to a fixed multiple of annual earnings, while 34 percent had a flat dollar amount of coverage. For those workers with coverage of a fixed multiple of annual earnings, 63 percent had one times earnings, and 22 percent had two times earnings. For workers with plans that paid flat dollar amounts, benefit amounts varied widely. However, the median policy for private industry workers had a death benefit of $20,000.
For most families, these amounts equal only a fraction of the amount needed to replace the lost earnings of a salary earner who dies too early. Voluntary life insurance benefits allow workers who want more coverage to buy it at lower group rates.
Features of Group Life Insurance
Depending on the size of your group and its participation rate, your employees might obtain voluntary life insurance on either a group or individual basis. When an employer group buys group life coverage, the benefits administrator usually receives the actual policy, while participating employees receive certificates of coverage.
Most group life policies are term insurance, rather than whole life or permanent insurance. Term life insurance provides a death benefit if the insured dies while the policy is in force, but typically no benefit if he/she lives past that time. It builds no cash value and doesn’t have an investment component.
Some group life insurance plans have features that provide benefits beyond simple term life coverage, however. Some allow employees to keep their coverage after retirement by paying premiums directly to the insurer. Others allow plan members to convert their coverage to an individual term policy, up to a specified dollar amount, without undergoing underwriting. This feature can help individuals whose health might otherwise prevent them from buying life insurance to keep at least a minimum amount of coverage.
Some group life insurance policies offer benefits designed to extend coverage to other family members. If a policy offers survivor benefits, it will pay a monthly sum to the spouse of a group member who dies before retirement. Some policies with survivor benefits will pay contingent benefits to dependent children if the spouse dies as well.
When employees buy insurance through a voluntary plan, they can pay with pre-tax dollars through payroll deduction. Their beneficiaries will also receive any benefits free of income taxes.