Among the many benefits employers can offer, group life insurance is one that employees tend to genuinely value. It provides a basic level of financial protection for employees’ families in the event of an unexpected death—and for many workers, employer-provided life insurance may be the only life insurance coverage they have. Understanding how group life insurance works can help business owners make informed decisions about including it as part of their employee benefits package.
How Group Term Life Insurance Works
The most common form of employer-provided life insurance is group term life insurance. Unlike permanent life insurance, which builds cash value over time, term life insurance provides a death benefit for a specific coverage period—in this case, typically for as long as the employee remains with the company.
In a group policy, the employer purchases a master policy and employees are enrolled as a group. This structure generally allows employers to offer coverage at lower rates than employees might find purchasing individual policies on their own, because the risk is spread across the group.
Employer vs. Employee-Paid Premiums
Group life insurance can be structured in different ways depending on how premiums are handled:
- Employer-Paid: The employer covers the cost of a basic level of life insurance for all eligible employees. This is often offered as a standard part of the benefits package.
- Employee-Paid (Voluntary): Employees pay the premiums themselves, typically through payroll deductions, often at group rates that may be more affordable than individual market options.
- Contributory: Both the employer and employees share the cost of premiums.
The structure you choose will affect your benefits budget and the level of coverage employees receive.
What Coverage Amounts Are Typical?
Employer-provided group life insurance coverage amounts are often expressed as a multiple of the employee’s annual salary—for example, one or two times the employee’s annual earnings. Some employers offer a flat coverage amount, such as a set dollar figure for all employees regardless of salary.
While basic group life insurance is a valued benefit, the coverage amount provided by an employer alone may not be sufficient for all employees, particularly those with families or significant financial obligations. This is one reason many employers also offer supplemental life insurance options.
Supplemental Life Insurance: Giving Employees the Option for More
Supplemental life insurance allows employees to purchase additional life insurance coverage beyond what the employer provides. This is often structured as a voluntary benefit, meaning employees pay the premium themselves. Employees may also have the option to purchase supplemental coverage for their spouse or dependents.
Offering supplemental life insurance can be a meaningful addition to your benefits package, giving employees the flexibility to increase their coverage as their personal and financial circumstances evolve—without requiring a significant increase in your benefits budget.
Looking to add or review group life insurance as part of your employee benefits package? Contact Hynes Benefits Consulting LLC in Phoenix, Arizona at (602) 952-0371 or fill out our online form. We’re here to help you explore your options.