What is employer offered life insurance? The pros and the cons.`

Employer-Sponsored Life Insurance

What type of life insurance is offered by most employers?

Most employers offer what is called group term life insurance to their employees. The employer is the owner of the policy and certificates are issued to the employees. These policies are renewed annually during employee benefit open enrollment. Most coverage is usually between $20,000 – $50,000 or equal to or twice the salary of the employee. If offered by an employer these policies should be seen as an extra perk. As with any type of life insurance, group life insurance has advantages and disadvantages.

Advantages of Group Term Life Insurance:

• Employers may offer this benefit to their employees free or at a rather low cost
• Premiums are deducted directly from employee’s paycheck
• No individual underwriting requirement, so people who may not be able to obtain individual life insurance can obtain group coverage
• Usually, enough insurance coverage to cover burial expenses
• Employee’s spouse and dependents can obtain coverage at a low cost
• The employee can list beneficiaries

Disadvantages of Group Term Life Insurance

• The employer may have a waiting period before an employee qualifies for group insurance. So, during that period employees may be uninsured leaving their families with a financial risk
• Annual premiums may increase since the life insurance is an annual renewable term policy
• The employee is not the policy owner, so once employment terminates so does the life insurance. Employees may have the option to convert the insurance to an individual plan, but the premiums may be significantly higher.
• Provides basic death insurance, does not provide living death benefits such as illnesses due to terminal diseases, chronic, or critical illnesses
• Not enough coverage to cover expenses in addition to burial expenses. Family may be stuck with other financial obligations.
• Some group insurances may only provide coverage if death takes place while performing job-related duties
• Coverage paid by the employer in excess of $50,000 coverage may be subject to be included in the employee’s salary, IRC section 79
• Coverage paid by the employer to cover the spouse and dependents may also be subject to be included in the employee’s salary

Although group life insurance is a great benefit for employees to partake in, families should have life insurance based on their financial needs. Life insurance from an employer should be considered extra, but families should have policies they own just in case their employment terminates.