Some employers have chosen to offer life insurance benefits to their employees. Before providing this type of insurance, your business must determine which employees will be covered, what types of benefits are offered, and how much insurance is affordable. Offering life insurance is entirely optional.
Although offering life insurance is optional, it is something that employers should consider since both the employer and employees can benefit from lower rates by insuring a larger group. An essential step in offering life insurance is finding the right vendor and administering the plan properly.
If you have decided to offer life insurance, you’ll have to determine which employees qualify for these benefits. For example, your business may choose to provide group term life insurance for every full-time employee. Your company will get lower rates and will not need to worry about individual medical exams if you are insuring a larger group.
If you opt to provide life insurance as a bonus to a small group of select employees, you may not be able to deduct the premiums as a federal tax write-off, unless you can prove you are meeting nondiscriminatory requirements set by the government.
Nondiscrimination requirements are in place to disincentivize you from giving benefits to highly compensated employees or providing benefits that lower compensated employees cannot afford. You can prove that your group life insurance plan is nondiscriminatory if you meet conditions such as:
- Providing a life insurance plan that benefits at least 70% of your employees
- Showing that at least 85% of the employees who participate in the life insurance plan are not classified as critical employees
- Offering a plan that benefits employees and is deemed by the IRS as non-discriminatory because it does not favor key employees
The majority of employers offer group term life insurance to their employees. Term insurance is life insurance that is only in effect for a set amount of time. With most employer-provided term life insurance plans, employees are covered for as long as they are employed. This type of insurance is offered only to employees. It does not extend to their children or spouses. For your business to take a tax deduction for group term life insurance, you must have a minimum of 10 full-time employees.
Other types of insurance you might offer include the following:
- Group Accidental Death and Dismemberment. AD&A coverage pays benefits to the employee’s beneficiary if the employee dies or if there is an accident that causes the employee to lose a portion of their body.
- Business Travel Accident Insurance. This insurance covers your employee if they die while traveling on business. If your company does not require employee travel, this might not be the right insurance.
- Split-Dollar Life Insurance. If an employee dies, the payout is given to the beneficiary. The premiums are paid back to the employer. This type of insurance is typically extended to key employees.
Certain health conditions can make it challenging for people to qualify for health insurance. For example, having polycystic kidney disease can make it challenging for a person to get life insurance. An individual with this condition would need to work with a special risk broker.
A special risk broker may be able to offer polycystic kidney disease life insurance. They have unique experience and knowledge that typical life insurance brokers do not have. A special risk broker represents several companies. These companies specialize in underwriting life insurance for individuals who have polycystic kidney disease.
The special risk market is a niche market for insurance carriers. In the same way that you would not go to a general practitioner for cardiac surgery, you wouldn’t go to a general insurance company with no life insurance experience for polycystic kidney disease.
Life is full of unknowns. Life insurance is a way of protecting your loved ones when unforeseen events happen. No matter if it is offered through an employer or if special circumstances require an employee to get it for themselves, life insurance is essential for any responsible financial plan.