Group Life Insurance: What To Know
Employees Might Not Realize The Importance Of Life Insurance
Group Life insurance is, in our humble opinion, much more important in the grand scheme of things than the other ancillary benefits. Employees certainly want life insurance, but It’s not necessarily a sexy thing to buy or talk about, but they do want it.
Offering a group life insurance benefit through the company is a nice gesture, and it is also very reasonable to purchase a small plan for everyone. Even more reasonable. then the other ancillary benefits of dental and vision insurance..
Types of Life Insurance
There are three types of life insurance vehicles available as group benefits.
Term Life Insurance.
This is the most purchased type of life insurance. This is because term life insurance policies are the most affordable plans for the amounts of coverage they can provide. The plans are on a term by term basis. To keep things simple, term policies are most often purchased in 10, 20, or 30 year terms.
Once the term is up, the insured must purchase a brand new term, and it will be much more expensive than the premium they were paying over the course of the term that just ended. It then makes sense to convert the policy to a permanent policy like whole life, which is the second type of life insurance.
Whole Life Insurance
Whole life insurance, means for the insured’s whole life. It is meant to be permanent life insurance with level premiums for life. So while it may seem expensive at first, it will be cheaper than a what a new term policy will cost for the same amount of coverage years down the road. And it accumulates cash value that can be borrowed against. ,
Essentially a portion of the money that is put into the plan premium goes towards the insurance. Then another portion goes towards the cash value of the plan that has some sort of a guaranteed interest rate. In most cases somewhere around 2 to 5%. Sometimes it can fluctuate a little higher or a little lower depending on the market and the financial strength of the institution the policy is with.
Universal Life Insurance
Universal life insurance, which is a little bit tricky to understand, kind of takes the best of both worlds with the cheaper rates more comparable to a term during the beginning years of the policy, combined with the benefits of cash accumulation like a whole life. What you can do with a universal life is contribute an amount to the insurance portions, just like you would with whole, but you usually will have a higher window of what you can contribute without facing tax consequences.
Likewise, if you are short on money during a given month, the cash value can pay your premium, or you just make a minimum payment to keep the coverage active. As you get older, the cost of the universal life insurance may go up, so the contribution amount needed to keep the policy active may also go up.
Other Things To Consider: Riders on Policy
A rider on a particular group life insurance product we have successfully deployed in multiple accounts, is universal life insurance policy that also has a critical illness and accelerated benefits rider. This means the policy can be used as a hybrid for long term care insurance.
It’s not exactly long term care insurance, but, the face amount was $100,000 for most employees. If at some point down the road, the policyholder ever got diagnosed with a critical or terminal illness requiring long term care, they would have immediate access to a percentage of that $100,000 for whatever they needed it for.
The policyholder is able to take 4% of the $100,000, $4,000 every month for 25 months, and if it gets depleted, the plan will actually replenish the $100,000 with another $100,000, giving these employees 50 months of long term care coverage at $4,000 per month. Some with bigger policies would get more obviously.
This is a big deal for employees, because one of the most sought after benefits from an employer is long term care. Unfortunately long term care is expensive and does not accumulate any cash value. These life insurance policies have been a major hit with every company who has made them available to their staff.
Another great thing about these long term care hybrid life insurance policies was that they were offered to the employees as a guaranteed issue product up to $100,000. This is very important because, we have written a lot of life insurance at Westfall Insurance, on the individual side for business owners and other
average everyday Americans from all walks of life. And in that process, there is almost always extensive underwriting requiring a doctor’s exam, family history questionnaire, financial audits, etc.
A lot of folks are living with things like diabetes, and other chronic conditions that are, fairly normal to have as an aging American.
Being able to obtain guaranteed issue life insurance coverage inside a company can sometimes be the only chance an employee has to get decent coverage.
We have worked with folks that are in their sixties past that didn’t have live insurance and they didn’t take it with them or whatever the case may be. And and, you know, we struggled to just get them a $10,000 policy that they could hardly afford, you know, because of their health.that brings up the discussion on portability.
Can the plans be portable? So if an employee signs up for the program, with your company, can they take it with them when they retire or switch jobs? A lot of folks retire and they don’t have life insurance because they kept it with their employer and then it’s gone when they leave the business.
Life Insurance is not the most fun topic to talk about, but at the end of the day, what it does is it provides a tax free lump sum of money to a beneficiary or beneficiaries in order for them to do a multitude of things, depending on the amount and their needs at the time.
This can be for something smaller, but still expensive like: cover funeral costs, mortgage payments, car payments, other bills that aren’t getting paid now because of the death of that individual,
So we believe.the most important ancillary benefit that can be offered for the employee’s own good is without a doubt, a group life insurance policy.