Part 2 of a 3 part series…
Types of life insurance
Life insurance is one of the most common employer-provided benefits, and is divided into two categories: term and permanent. Term life insurance has a specified coverage period (term), but can usually be renewed or converted into a permanent policy at the end of a term. Premiums are generally affordable initially, but can increase substantially when renewed.
Permanent life insurance is life-long coverage that generally also includes a cash value savings component. There are many types of permanent life insurance, including whole, universal and variable. This type of coverage has higher premiums, but offers more long-term value.
Employer-sponsored coverage can be offered in a variety of ways. Employers may offer a term policy, permanent coverage or both. Cost-sharing also varies, as some employers cover the full cost, some require employees to pay the full premium and others split the cost with employees.
A common scenario is an employer offering a group-term policy at no cost to the employee, with a coverage amount that is a multiple of annual salary (usually one to five times annual pay). Group-term policies often end when an employee leaves the organization (or dies), but employees may be able to convert it to a permanent policy or renew it upon leaving. This is generally an affordable plan for employers to offer, though it does not offer as much long-term value to employees as a permanent plan.
Many employers who offer such a group-term policy also offer additional voluntary coverage options, in which the employee pays the full cost but still realizes the benefit of group rates and payroll deductions. Additional coverages offered may include:
- Spouse/dependent life insurance (group-term policies only cover the employee)
- Supplemental term life insurance (to elect a higher amount than the employer offers)
- Supplemental permanent coverage (a whole, universal or variable life policy in addition to the term policy)
- Accidental death & dismemberment (AD&D) coverage
For more information, contact Mary Lyons, GBA, Health Benefits Solutions.
- Part 1 – Offering Life Insurance Benefits: The Basics
- Part 3 – Offering Life Insurance: Benefits to You and Your Employees
This Benefits Insights is not intended to be exhaustive nor should any discussion or opinions be construed as professional advice. © 2016 Zywave, Inc. All rights reserved.
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