How to Tempt Great Talent by Providing Life Insurance
Business owners constantly face the challenge of providing a competitive benefits package at a cost they can afford. One option worth considering is life insurance. In fact, 58% of private-industry workers have life insurance offered as part of their benefits package. To stay competitive with these workers, offering life insurance can be a smart choice. Luckily, it isn’t that expensive to do.
Should you offer it?
Legally, offering life insurance is purely optional. However, many employees want and expect it. And the money you spend on it is partly untaxed. You can deduct the premiums for the first $50,000 of coverage for each employee before the employee’s income tax.
Life insurance is an important benefit to long-term employees with families. These employees have loved ones relying on their support, so they need insurance to make sure their family members will be taken care of if anything happens to them. If they intend to stay at the company for a long time, keeping a policy through work may be an attractive proposition.
Group term life insurance can be a savings for employees because the premium is calculated as a group–individual employees’ age and health won’t count against them. That makes this option inexpensive for the employer as well, whether you choose to pay all or part of the premium.
Legally, you can offer life insurance to some employees and not others–but only if it’s not considered discriminatory. For instance, you can offer insurance to all full-time employees, all employees who make over $100,000 a year, or all employees who have stayed with the company at least two years. You can’t offer it to only male employees or to only your five most vital employees.
To qualify for tax exemptions, you need to employ at least ten people and offer life insurance to at least 70% of employees, of whom 85% are not key employees. The ten-employee minimum does not count if you offer life insurance to all your employees.
What are your options?
No matter how a person’s life is insured, whether individually or through a business, life insurance tends to fall into two main types: term life insurance and whole life insurance.
Term life insurance lasts only for a temporary period of years. If the individual dies within this period, their beneficiaries receive a payout; otherwise, the coverage lapses. This option tends to be inexpensive.
Whole life insurance lasts as long as the premiums are paid. It treats the premiums as an investment, so the value of the policy can increase as time goes on. The individual can sometimes withdraw money from the policy, if they have been paying long enough. But these policies are more expensive than term life insurance.
Another decision you have to make is the size of the benefit. Some policies have a flat dollar amount, such as $50,000. Others give each employee a multiple of their salary—for instance, two years’ salary. Thus, an employee who makes $40,000 a year will have an $80,000 policy, while an employee who makes $60,000 will have a $120,000 policy. That allows the employee’s family, in the event of the employees’ death, to maintain their old standard of living.
If this seems too rigid, you can also offer one basic benefit to everyone, but allow them to purchase additional life insurance through the same plan.
You also need to decide how much of the premiums you want the company to pay. Group life insurance can still be beneficial to employees even if they’re paying the whole cost, but the more of it you pay, the more valuable it is as a benefit.
Lastly, you might want to choose additional types of insurance. Accidental death and dismemberment is a popular option, which allows an individual to receive a benefit if they lose the use of a limb. Or, if employees travel for work, business-travel accident insurance may be worth the cost.
A benefit for employees’ peace of mind
With a good life insurance policy through their work, your employees will be able to put worries aside. They’ll know their families will be taken care of, no matter what happens to them. You can’t put a price on that peace of mind.
Life insurance is just one part of a competitive benefits package. For advice on how to build a benefits package that works for your company, talk to one of our financial advisors. They can help you work out what benefits mean the most to your employees at a cost you can afford.