Group life insurance is provided as part of a complete employee benefit package. It provides a way for employees to feel secure knowing that their family is going to be financially stable in the event that they can’t be there for them. This caring and responsible approach helps employees feel more engaged at work and more financially secure at home.
Basic Life Insurance
Basic life insurance pays a pre-determined amount in the event of the employee’s death from any cause. Rates are based on the demographics of the group. Premiums paid by the employer are a taxable benefit to the employee, but any benefits received are non-taxable. Beneficiaries should be designated in advanced. If possible, the estate of an individual should not be named as beneficiary because the proceeds then become subject to probate.
The coverage amount is generally based on either a multiple of the employee’s earnings or a flat amount. Earnings for the purpose of group life insurance coverage typically only include salary. However, it is possible to include commission income and sometimes bonuses. You can structure the plan by using different classes of employees, such as executives, managers and all other employees, each with different coverage amounts.
Age-Related Benefit Reduction
The basic group life insurance coverage is usually reduced at age 65 by 50% and ends at age 70 or at retirement.
Accidental Death and Dismemberment
Accidents can happen to anyone. Accidental Death and Dismemberment (AD&D) is part of the Group Life insurance coverage and protects employees if they suffer a loss of life, use of a limb, sight, hearing and/or speech due to an accident.
The coverage amount for AD&D is the same as the Life coverage, either a flat amount or a multiple of the employee’s earnings.
Employers have the option to decide if they want to include Dependent Life as part of their Group Life insurance coverage. Dependent Life plans provide flat coverage for the spouse and children of all plan members. The most common coverage amounts are $5,000 for the spouse and $2,500 per dependent child or $10,000 for the spouse and $5,000 per dependent child.