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As a small business owner, the decision to offer life insurance to your employees can be a tricky one. With limited resources, every dollar spent on employee compensation must be carefully budgeted. One option that can help small businesses remain competitive in their benefits offerings is group life insurance.
When deciding whether to add group life insurance to your company’s benefits package, it’s essential to understand the various options available to you. In this article, we’ll explore the most common types of employer-sponsored group life insurance plans, what happens to an employee’s coverage when they leave the company and more.
Group term life insurance is the most popular type of employer-sponsored small business life insurance policy. This type of life insurance offers employees coverage for a pre-determined period, or “term,” and can be renewed over and over again. Commonly, you’ll see term life insurance policies last for a term of one year and provide the option to renew annually, but coverage periods of 10, 20, or even 30 years are common, too.
Group term life insurance offers a death benefit to an employee’s designated beneficiary, such that if the insured employee passes during the term, the benefit will go to the individual the insured employee has selected. Because group term life insurance policies do not accrue cash value, the policy must be active at the time of the insured individual’s passing in order for the beneficiary to receive the death benefit of the policy. Therefore, it’s important that employees understand the pros and cons of renewing their term life insurance policy.
Group whole life insurance is another popular type of small business life insurance policy. Whole life insurance provides coverage to an insured employee for their entire life—hence the name “whole” life. While the insured individual will need to continue paying premiums, there is no need to renew this type of insurance policy; rather, whole life insurance policies stay active until the insured employee passes or the policy is canceled.
Unlike group term life insurance, this type of policy accrues a cash value that grows over time. This means that an insured individual can withdraw from or borrow against the value of their whole life insurance policy, for needs like retirement, mortgage payments, emergency expenses, education, and so on. However, employees won’t be able to access the full amount of money they’ve paid in premiums. Accessing a whole life insurance policy’s cash value can significantly reduce the available “cash surrender value” as well as the policy’s death benefit to beneficiaries.
You might think of group universal life insurance as a blend between group term and group whole life insurance policies. The group universal life insurance policy blends the “term” component of term coverage with the cash value benefit of whole life coverage. It also allows employees to contribute additional money if they’d like to build the cash value of their plan more quickly. A key benefit of universal life insurance is that premiums remain the same throughout the insured individual’s life.
When an employer sponsors a group life insurance policy, it usually ends when the employee leaves the company. However, some policies are "portable," meaning that employees can continue their coverage after leaving, though often at a higher premium. If the policy is portable, the employee typically has 30 to 60 days after their employment ends to decide whether to retain the coverage.
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In 2024, just over half of Americans (52%) carry a life insurance policy—and many more want life insurance, but haven’t taken out a policy. Numbers indicate that life insurance is an important benefit to American workers.
Some of the most popular reasons for placing a value on life insurance are the desire to fund funeral and other after-death expenses, financially provide for family members after death, and shield family members from the insured individual’s unpaid debt.
Studies also show that most people overestimate the cost of life insurance. In fact, according to a MarketWatch report, for a thirty-five-year-old man, the premium payment on a $500,000 policy is just $26. This makes it possible for small business owners to offer competitive benefits packages that include group life insurance at an affordable rate.
As you’re considering whether to offer group life insurance, you should know that most private employees have access to life insurance as an employer-sponsored benefit.
In fact, data from the U.S. Bureau of Labor Statistics shows that in 2023, over 80% of union private industry workers and just under 60% of nonunion private industry workers had access to life insurance through their employers. Offering group life insurance can help small businesses stay competitive in today’s talent market by enhancing their overall compensation packages.
The prevalence of employer-sponsored group life insurance plans can make the scales tip more heavily in favor of offering this benefit. To thrive in the talent marketplace, it’s critical to keep up with your competitors’ total compensation packages—which go beyond salary and bonuses alone.
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If you’re interested in exploring group life insurance options for your small business, a certified professional employer organization (PEO) like Axcet HR Solutions can help. We specialize in helping small to mid-sized businesses source and save on the best benefits for their employees, allowing you to focus on growing your company.
Schedule a conversation with us today to learn more about our Fortune 500-level employee benefits packages for small businesses -- all at a rate you can afford.
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