Supplemental insurance allows employees to customize their coverage to meet their individual needs.
Most employees now get their life insurance through a group plan provided by their employer. According to LIMRA, a research group funded by the life insurance industry, 108 million Americans have an employer-sponsored basic life insurance plan, while 102 million have a plan they purchased themselves. LIMRA began tracking life insurance sales in 1960 and this is the first time group coverage has been more popular than individual coverage.
Employers usually pay all of the cost of a basic life insurance policy. The free policy for the employee pays death benefits to the employee’s beneficiaries. Small firms often offer a flat dollar amount from $25,000 to $50,000. Large firms are more likely to offer policies that pay one to three times a policy holder’s salary as a death benefit.
Coverage is guaranteed and no medical exam is required for these group plans. The employer pays the same premiums for every employee because the group rate is not dependent on someone’s age or health. An employer can offer this coverage to all employees or impose certain conditions, such as requiring minimum time of service before getting the benefit.
Not every death is covered, though. Some plans do not pay benefits for suicide, civil riots or deaths that occur during military service.
And while a basic life insurance plan does provide coverage, it might not be enough coverage for those who have a spouse or children.
Employer-Provided Supplemental Insurance
If you already offer basic life insurance to your employees, you can add supplemental insurance options at no cost to you. Supplemental insurance allows employees to customize their coverage depending on their needs or financial situation. Your employees pay the premiums, and you provide low-cost access to a variety of plans and benefits.
Unfortunately, many employees don’t take advantage of these types of benefits. LIMRA reports that 14 percent of full-time employees are not aware that they have access to supplemental plans. To increase employee awareness of the benefits of life insurance, you can educate your employees. Ask the carrier to help you host on-site enrollment sessions, hold a webinar about the product or conduct web-based training, followed by online enrollment.
Life insurance experts recommend workers get enough supplemental coverage to pay off their debts. They’ll need more if they have children who are planning to attend college or if their spouse depends on their income. An easy and practical rule of thumb is 10 times the employee’s salary.
Although an employee cannot take their basic life insurance policy to another job if they leave your employment, they may be able to take their supplementary coverage with them. The carrier, though, may impose a fee.
Employees can purchase supplemental insurance as either term or permanent.
A term life insurance policy is less expensive than a permanent life insurance plan. Term insurance only pays a death benefit for 10, 20 or 30 years — depending on the terms of the policy. This can be a great fit for employees who are concerned about making sure their beneficiaries have funds available to pay off the big-ticket items.
A permanent life insurance policy lasts for as long as the policy holder pays the premiums. These policies have the added benefit of being a way to save money. Over time the policy increases in cash value, and the policy owner can then borrow from it or withdraw the cash value.