Group term life insurance is a popular benefit because
the cost is relatively low and employees typically value the coverage
highly, giving employers a big “bang for the buck.” Offering group
term coverage provides basic financial security for employees and
their families and helps to attract and retain the best employees.
Because group term life
insurance is inexpensive and highly valued by employees, employers
frequently pick up the full cost. In addition, the cost of the first
$50,000 of group term insurance coverage may be provided tax-free
to the employee.
The most common practice
among employers is to provide employer-paid group term life insurance
in an amount equal to a percentage of each employee's annual pay. There are numerous variations on this basic design, including:
• Higher benefits, such as 11/2,
2, or 3 times annual salary
• Flat-sum benefits in various multiples, such as $10,000,
$25,000, $50,000, etc.
• Requiring employees to pay a portion of the premiums
• Allowing employees to purchase supplemental coverage
at group rates
• Employer-paid, employee-paid, or shared payments for
spouse and dependent coverage
• Additional group universal life insurance coverage giving
employees additional portable insurance coverage and the ability to
Term insurance is the least expensive form of life insurance.
A term policy covers only the “term”--usually a year--in which premiums
have been paid, and it has no cash value, paying only in the event
of the death of the insured. A term policy at group rates is less
expensive per person than individual term policies would be for the
same group of people, and a term policy is considerably less expensive
than a “whole” life or “universal” life policy. These types of insurance
have a cash value and are as much savings instruments as insurance
policies. They are also available at lower group rates, but both are
still a great deal more expensive than group term insurance.
Many companies enhance the value of their life insurance
benefit, at no extra cost, by allowing employees to purchase additional
insurance at the employer's group rate, including coverage for the
employee's spouse and dependents. Some employers also provide accidental
death and disability insurance in an amount equal to the life insurance
benefit. This doubles the insurance benefit if disability or death
results from a non-work-related accident. There is no consensus on
the economic value of such “double indemnity” coverage, but many experts
consider it helpful as a kind of air-travel insurance. Alternatively,
separate travel accident policies can be purchased for those employees
who travel frequently.