Offering Your Employees Group Life Insurance: Pros and Cons

As a business owner with many employee insurance options, you may wonder about group life insurance: pros and cons. How does it differ from an individual policy? What are the advantages and disadvantages of offering group life insurance? Life insurance is the cornerstone of any comprehensive benefits package, and it’s essential to understand how it works. Continue reading to learn how a group life insurance policy can benefit or detriment you and your workers.

Group Life Insurance: Pros and Cons

Making an informed decision about whether or not to offer group life insurance to your employees is crucial. First, you’ll need to familiarize yourself with the group life insurance: pros and cons to do so. 

What is Group Life Insurance?

Life insurance is a contract between the policyholder and an insurance company in which a policyholder pays premium rates to an insurer. In exchange, the insurer promises to pay a lump sum called a death benefit to the insured’s beneficiaries if the policyholder passes away. But to fully understand how life insurance works, we need to look at the two types of policies: whole versus term life insurance.

Whole Life Insurance

Whole life insurance is also known as permanent life insurance. Once purchased, coverage lasts the policyholder’s entire life, and it never expires. This life insurance is the most expensive kind. 

Term Life Insurance

Term life insurance is coverage set for a limited time, usually between 1 and 30 years. If the policyholder passes away within that time frame, the death benefit is paid to their beneficiaries. If they die outside that window, the death benefit is not paid. 

Group life insurance is typically a term policy, though whole life policies aren’t out of the question. However, because whole life insurance is much more expensive than term life insurance, most employers opt for the more affordable option when ensuring their workforce.

Advantages of Group Life Insurance

  1. Low Cost

Group life insurance is more affordable because it’s a term policy, and the rates get negotiated on behalf of a wider pool of individuals. This makes group life insurance cheaper for both the employer and the employees. With free to low-cost coverage for workers, employees are more likely to enroll in a group policy and reap life insurance benefits. Not only will employees’ families remain financially stable in the case of a tragedy, but employees themselves will feel more emotionally stable knowing that their beneficiaries will be provided for no matter what. 

  1. More Control

As an employer taking out group life insurance for your employees, you are the policy owner. This means that you get to dictate the coverage term and policy limits with the help of your insurer. This gives you more control over the terms of the contract, ensuring that your needs (and the needs of your employees) are met.

  1. Fewer Hoops to Jump Through

Unlike individual life insurance policies, group policies don’t require insurees to pass a physical exam, streamlining the application process for both you and your employees. This also helps employees with pre-existing conditions access affordable coverage.

  1. Convenient

Rather than having your employees’ research insurance policies on their days off, save them the headache by offering a group policy option. Not only will you vastly reduce the piles of paperwork required for a life insurance policy, but a group policy also helps employees select the policy of their choice through a company you’re comfortable with and have negotiated terms with already. This is safer and more convenient for all parties.

  1. Tax Breaks

When you offer group life insurance for your workers, it’s tax-free for up to $50,000 in coverage, meaning there are no tax consequences if the total sum of your policy exceeds $50,000. Also, if you pay some of the premiums for your employees, their life insurance is considered tax-deductible. This means group life insurance is a better deal for you and your employees than individual policies.

Disadvantages of Group Life Insurance

  1. Limited Options

While group life insurance is more cost-effective for more expansive pools of people, there are also fewer options for coverage. This means that employees won’t have the same range of policy options offered by individual life insurance plans. However, these limited choices help streamline the application and selection process.

  1. Low Coverage Amount

The coverage amount offered through group life insurance is often lower than the typical individual policy. This means that your employees may need to seek out additional coverage to bolster their group life policy, especially if they have extenuating health issues. 

  1. Contingent on Employment

Group life insurance doesn’t follow an employee from job to job, meaning the policy is contingent on their continued employment. However, this could prove beneficial for the employer. Once an employee no longer works for you, you’re no longer responsible for their coverage, saving you money.

Make an Informed Group Life Insurance Decision with Canal HR 

Group life insurance is a term life policy that makes life insurance accessible and affordable for employers and employees. While there are advantages and disadvantages to any insurance policy, group life insurance can help protect employees and their families without breaking the bank. And while weighing the pros and cons on your own can be a headache, providing life insurance is quick and convenient with the help of a professional employer organization like Canal HR. As a PEO, we have access to lower rates because of our group buying power, making it easier than ever to provide great premium rates for your employee’s life insurance. In addition, we’ll handle the responsibilities of choosing, administering, and managing life insurance, so you don’t have to, saving you time and money. 

To determine if affordable group life insurance is right for you, contact Canal HR today to streamline your HR operations and protect your workforce.