Offering Life Insurance to Your Employees

For many people, life insurance is an afterthought. Those that do apply for it are often faced with mountains of paperwork and the prospects of failing the physical exam and paying exorbitant premiums. That's why employer-sponsored life insurance can be an especially attractive benefit for prospective employees.

Even small businesses can provide this benefit to their employees by purchasing a group life policy. Unlike individual policies, employer-sponsored plans often don't require that applicants pass a physical exam. And group life insurance is relatively easy to convert to an individual policy when an employee leaves a company.

Companies typically provide an employee with life insurance coverage equal to their yearly salary. For example, an employee who makes $30,000 per year would receive $30,000 of coverage. Some employers offer insurance of two more more times the salary with increased contributions from employees. Most insurers require the employer to pay the premiums, or they require that a certain percentage of employees participate in the plan. In some cases, businesses can require employees to pay a portion of the insurance premium, or may offer additional coverage -- accidental death and dismemberment insurance, travel protection, coverage for dependents and family -- at a minimal cost to the employee.

Most insurers won't provide coverage for groups of fewer than 10 members. The average policy costs about 5 cents for every $1,000 worth of coverage. Group life insurance rates are based on a number of factors, including:

Size of the group; Company claims history; Type of occupations associated with the group; Gender and average age of the employees; Employee salaries (if a salary-based plan is purchased). A company's life insurance rates are reevaluated every five years or so to account for changes in the company's demographics. If the average age of employees goes up, or a company's claim rate increases, insurance premiums may go up as well.

However, group life insurance premiums are considerably lower than premiums for individual life insurance policies, mainly because group life insurance is much less risky for the insurance company. Insurance companies base group life premiums on the overall risk of the company or group.

For most companies, the risk factor is low -- everyone in a company is not likely to die at once. In fact, due to turnover, the chance that anyone will die while working at your company is relatively small. And since group life insurance is typically bundled with group health insurance, the insurance company's sales and administrative costs are minimal.

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