How Does Employer Life Insurance Work?

Employer life insurance is a form of term life insurance called group term life. Group term life offers several advantages, but like all things comes with its drawbacks.

What are the advantages of group term life?

This product is offered by employers or associations and they will often pay the premiums in full or in part. This, in addition to it being a temporary product underwritten as a group, makes group term life insurance the cheapest form of life insurance available. Even though the premiums paid on behalf of the employee is a form of compensation, those payments will not count towards the employee’s taxable income for benefit under $50,000.00. If an employer decides to make life insurance available for their workforce, they must extend this offer to all employees. This means that those who have pre-existing conditions, or are currently undergoing treatment for a diagnosis, can be covered as well with no difference in cost or benefit. For those who can not attain private insurance, the employer benefit route can be a god-send.

What are the disadvantages of group term life?

In addition to providing and paying for the employee’s life insurance plan, the employer also owns the coverage. This means that they have the ability to alter all aspects of the coverage offered, including cancelling it completely. As with all term coverages, these plans do not have any cash value accumulation, so even if the employee did own it there would not be much benefit to gain. Employer provided life insurance only extends coverage to full time employees, part time and seasonal work does not qualify for coverage. This includes when an employee retires or separates from the job. Lacking ownership means the coverage lacks portability and when the covered employee leaves the policy must stay.

How to use employer life insurance?

The combination of very low price and guaranteed coverage while fully employed makes group term life insurance a great bargain. Here at Bay Life we always encourage clients to max out these benefits as a supplement to a more ideal individual plan. This allows all of the tax and cost benefits of employer provided life insurance to be enjoyed with the peace of mind of knowing you control your own coverage and all the benefits associated.