Thinking About Adding Group Life to Your Employee Benefits Package?

Suzanna De Baca -- Expert Business Source, 5/2/2007 10:20:00 AM

With employee recruitment and retention among the most critical issues for the construction industry, the benefits packages business owners can offer are more important than ever.  If you don’t have group life insurance for your small business, you might consider this valuable and affordable benefit.

Selecting a group life insurance plan is different than purchasing an individual policy.  To help you get started, following are some facts and features of group life insurance plans.

Contributory versus Non-Contributory:  Group Life Insurance can either be paid for by the employer or jointly by the employer and employee.  When it is paid for solely by the employer, the group insurance is referred to as non-contributory and when it is paid for by both the employer and employee it is referred to as contributory.

Participation Requirements:  There are different participation requirements for these two types of plans, mostly because the issuing insurance company wants to have a good cross section of risk so that the claims will fall within expectations.  For contributory plans, 75% of the total workforce must participate, and  100% participation is required non-contributory.  In most group life insurance cases, the employer receives master policy and a certificate of coverage is provided for each employee. 

Term: Most group is life insurance is term insurance, which means that it does not accrue a cash value.  For this reason and others, group life insurance often has the lowest rates available to life insurance purchasers.  Generally, group term insurance is annual renewable term, and the issuer recalculates the premium on a yearly basis.
Coverage:  Most policies set a minimum requirement at $10,000 a year;  however, many employers provide coverage up to the amount of an employee’s annual salary.  Often employees have the option of paying out-of-pocket for more coverage through the group plan.  Some states require businesses to offer departing employees the option of continuing the coverage, in which case the employee will pay premiums directly to the insurance company.
Eligibility and Grace Periods:  A 90 eligibility period is common among employer sponsored plans.  That means an employee would not be covered for 90 days from the date of employment, but would then be eligible for coverage.  A 31 day grace period for payment of premiums is typical for group life insurance.

Premiums:  There is little individual underwriting in this type of insurance. Generally, group life insurance is considered “guaranteed issue,” meaning that employees don’t need to undergo a medical examination to be eligible. As long as they are active workers, even employees with pre-existing health issues or serious medical conditions may still be a part of the plan.  The premium is typically calculated by the insurance company, which takes into account the number of employees, the average age of the group, ratio of males to females, and the number of smokers in the group.  In addition, underwriters will look at the general risk factors associated with the business.  For example, a policy for a hazardous occupation within the construction industry like steel work would probably be more expensive than for an architectural firm. 

Taxation:

Employers may deduct the premiums they pay on a group plan for employees and employees receive the first $50,000 of coverage tax free. The premium cost for insurance above that level is taxable (either based on the actual premium or an IRS table).  In the event that employee dies, his or her beneficiaries collect the principal amount of the insurance free of any income tax.

Suzanna de Baca is President of Private Capital Solutions Group.  She is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS), 7 Hanover Square, New York, NY 10004, (888) 600-4667.  Securities products/services and advisory services are offered through PAS, a registered broker/dealer and investment advisor. Private Capital Solutions Group is not an affiliate or subsidiary of PAS.