Increase Benefits Without Decreasing Your Funds

Offer your employees group life insurance--an added benefit for them at a low cost to you.

By Mie- Yun Lee

Opinions expressed by Entrepreneur contributors are their own.

Introduction
Group life insurance has long been a staple item in benefitspackages. Employees want it because it can ease worries they haveabout leaving family members financially unstable after they die.Employers like to offer it because it's cheap compared to otherbenefits like health insurance or retirement plans.

Unfortunately, it gets a little tricky when choosing a planconsidering the different types of policies and various levels ofcoverage. Get the facts on how to get the right plan at the rightprice for your business.


What is group life insurance?
Group life insurance policies are taken out by an employer (thepolicy holder) and offered to employees (the insureds). As with anylife insurance policy, if the employee dies, the benefit is paid toa beneficiary - often a family member - chosen by the employee.

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There are two different types of life insurance: permanent andterm. Permanent covers a person for life, as long as he or she ispaying the premium. A term policy provides coverage for an allottedamount of time. Most group life insurance policies are termpolicies - covering employees only while they are working for yourbusiness. In most cases, once an employee retires or even takes aleave of absence, he or she isn't covered by a basic group lifepolicy.

Although not the norm for small businesses, you can beef up abasic policy. Provisions like coverage of a spouse and children orcoverage that pays out for a serious injury like dismemberment canbe added on.

Most employers cover the basic premiums of group life insurance.If they offer additional coverage, employees will pay the extracost. Group life is really designed to supplement a person'slife insurance policy. Point out to your staff that they have theoption to obtain additional life insurance through an individualpolicy when rolling out a group plan.

What you should offer
A typical policy for a small business will be a group term lifeinsurance policy. Most small businesses can afford only the basicssince the smaller you are, the more expensive your premiums willbe.

Most policies set a minimum benefit at $10,000 per year. But avery common offering is a year's salary as the benefit.Businesses also often offer employees the option to increase theirbenefit by two, three, or four times their salary. Employees can"buy up" to get this extra coverage by taking on theadditional benefit, as well as the additional cost.

You don't always have a choice, however, when it comes tooffering coverage to employees who leave the company. Some statesrequire employers to offer the option of continuing the lifeinsurance policy, in which case the employee will pay premiumsdirectly to the insurance company.

How much will it cost?
Group life insurance doesn't require medical exams, so thehealth of your employees will not factor into the cost. Butgenerally, your employees' ages, sex, and salaries will. Thesevariables are used to calculate a risk factor for each employee.Risk factors are then averaged to determine the premium.

Another aspect of the risk factor is business type. For example,an accounting firm, where employees sit at desks all day, will havea much lower risk factor (and premium) than a constructionbusiness.

The premium is factored on a per $1,000 of the benefit of theemployee. You'll pay a price for every $1,000 of the totalbenefit that's paid out if the employee dies. The price per$1,000 is almost always less than a dollar and usually in the areaof 10 cents to 25 cents.

Here's an example: Everything has been averaged in yourbusiness - the ages and sexes of your employees and your businesstype has been rated. The premium is set at 20 cents for every$1,000 of a benefit. If your benefit is one year's salary,employees who are making $50,000 will have a monthly premium of$10.

Most likely you'll get a monthly bill from your insuranceagency with one lump sum made up of each employee'spremium.

How to get a policy
You can purchase a policy directly from an insurance company or gothrough a broker, whose job is to compare different costs fromdifferent companies and clear up any questions you may have aboutpolicies. Because of the complexity of life insurance, it's agood idea to have a broker who can address your concerns andcollect the right information for you. The majority of brokers willoffer their services for free because they are paid by theinsurance companies they represent.

If you do use a broker, check with your state insurancedepartment to make sure he or she is licensed to sell lifeinsurance. Likewise, check that any insurance company you areconsidering buying a policy through is licensed.


Other business life insurance
Coverage for your employees isn't the only time you shouldconsider life insurance for your business.

Another popular policy is key man life insurance. That's apolicy taken out on top-tier employees, whether it be the owner,CEO, or all of the executives. In this type of policy, the businessis the beneficiary, so if any of these people critical to thebusiness died, the business wouldn't immediately go bust.

If you're the owner of a business, you may find that inorder for a bank to lend you money, you have to take out a lifeinsurance policy on yourself, making the bank the beneficiary.Therefore, if you die, the bank won't lose its investment.


Quick Tips
Reassess. Make it a point to re-evaluate your group lifepolicy each year. If the average age or number of employeeschanges, your premiums could decrease.

Cafeteria plan. Life insurance is often times part of acafeteria plan, a menu of benefits that an employee can choosefrom. If you don't think group life insurance will fit intoyour budget, try adding it as an option in a cafeteria plan.

Education. Inform your employees about group lifeinsurance, how much coverage is offered, and how it will protectthem. Employees should be aware that group life is generallyconsidered a supplement and that it's a good idea to purchasean additional policy to protect their family financially. TheInsurance Information Institute suggests a person should have apolicy for five to eight times his or her salary.

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