Since September is Life Insurance Awareness Month, it’s a great time for employers to consider an affordable benefit for their employees and perhaps review the benefits they offer employees.
What is life insurance? Life insurance is often called “love” insurance, a product that pays out a financial benefit (also known as death benefit) tax-free to a named beneficiary in the event of the death of the insured. It’s a benefit paid to those left behind. Proceeds from a life insurance policy can help cover funeral expenses, meet other financial obligations, pay off a home or send children to college.
How much life insurance is needed? Add current and future financial obligations and then subtract from that total such existing resources as survivors’ earnings, savings, investments and life insurance policies already owned. The difference is the amount of life insurance needed. When offering an employee paid benefit amount, employers often use amounts such as one or two times annual salary or a flat dollar amount like $25,000.
Who needs life insurance? If an individual’s family or other survivors will suffer financially if he or she dies, chances are life insurance is needed. This is the plight of most rank-and-file employees these days. With the economy slow to rebound, financial concerns remain high and planning for the future often gets put on the back burner. Now more than ever, employees need a little financial peace of mind. Employers can provide that through a paid basic life policy or voluntary life insurance plan. The days of discussing life insurance at the kitchen table with an insurance agent seem to have diminished and employees are looking to their employers for a convenient way to meet this need.
Employers should think about their staffs. Most likely they include employees who are married, married with kids, single parents and those who are taking care of aging parents. All of these scenarios come with their own financial pressures and could place people in dire straits if an untimely death were to occur. That’s where life insurance can fill the gap. Employer-sponsored coverage might not meet all of their needs, but it will give them an easy place to start and employees will appreciate the benefit.
Employer paid and voluntary life insurance plans help workers get coverage more easily than if they were to purchase an individual life policy on their own outside of the workplace.
Advantages of offering a life insurance benefit include: low cost to employees and employers due to efficiencies in enrollment and billing procedures; voluntary plan premiums are typically paid through an automatic payroll deduction; and the plan could have a guarantee issue amount (the amount of coverage you could apply for without having to provide evidence of insurability), which is normally not available when purchasing individually.
Out of all the benefits an employer can provide to employees, life insurance ranks among the least expensive and easiest to implement and administer. During an open enrollment process it’s a good idea to remind employees about updating their beneficiary information to reflect such changes as marriage or the birth of a child.
As a business owner, life insurance also offers additional protection through key man insurance or funding for a buy-sell agreement. To protect a business in case of the death of a key employee or owner, life insurance can be structured to be payable to the company, providing the financial flexibility needed to hire a replacement or work out an alternate arrangement.
Life insurance is definitely something to think about, especially as a way for employers to show appreciation to their employees.
Connie Schulthies, a certified professional in human resources, works as account manager in the health and benefits division of Home Loan Insurance in Grand Junction. She’s also a member of the board of directors of the Western Colorado Human Resource Association.