The Loop

3 Ways Life Insurance Excels as a Benefit

Filed under: Benefits

The vast majority of workers – 57 percent – obtain life insurance through their employer. This is the first time in history that more Americans get it this way than by purchasing an individual policy.

This is a good thing, because otherwise millions of Americans might not own any life insurance at all. The reality is that most folks don't have a financial professional to advise them and, left to their own devices, are not inclined to think about the repercussions of their own death. Nor it is a financial priority when they think about how to spend their discretionary income.

However, just about everyone would like to know their family and loved ones will be okay – at least from a financial perspective – should they die unexpectedly. That's what life insurance does. Even if a policy does not provide enough to sustain a family for life, it can at least cover initial expenses, pay off significant liabilities, and/or provide a bridge until loved ones find a way to replace the deceased's income. Here are some examples of these expenses:

• Initial expenses – funeral expenses, mortgage/rent, car payments, loans and everyday bills
• Significant liabilities – mortgage balance, current/future college education, student loans, credit card balance
• Bridge income – required education/certification expenses for surviving spouse's career, dependent care should spouse need to work

Clearly, this is not the type of pleasant planning that people want to think about. That's why it's important that employers offer this benefit: Not only is life insurance a critical asset when needed, but it provides substantial peace of mind for family income earners by just knowing it's there. If a business wants to demonstrate that it truly cares for workers, life insurance ensures that their families are supported during one of life's toughest challenges.

The following are the three times when employer-sponsored life insurance matters the most.

Before Getting the Job

In many industries, offering life insurance coverage isn't just a perk, it's an expectation. This is especially true in the current competitive job market; when employers don't offer the same basic set of worker benefits it is difficult to conduct an apples-to-apples comparison.

Employers typically offer a standard benefit of one to three times a worker's annual wage. Some also make supplemental coverage available on a voluntary basis for an additional fee paid by the worker, which generally costs less at the group discount rate than a worker could buy in the individual market.

Of course, a higher the amount paid for by the company, coupled with a low cost for additional coverage, makes for a stronger benefit compared to other employers. Those who choose to augment this benefit should be sure to promote it throughout the recruiting and interview process.

Offering additional insurance through a Voluntary Term Life Program is one way an employer can add significant and differentiating value without adding significant cost. This type of program may include:

• Generous Guarantee Issue Amounts – guaranteed coverage regardless of health history
• Portability – life insurance policy remains with workers even when they change jobs
• Plan Options – Added features like LifeAssist®, which provides income to workers who suffer a severe or catastrophic disability as well as an approved waiver of premium

Note that the IRS offers a tax exemption for the first $50,000 of group term life insurance coverage for a policy carried directly or indirectly by an employer. There are no tax consequences if the total amount of a policy covers up to $50,000. However, if the employer pays the premium for coverage amounts over $50,000, this must be included in the worker's taxable income. The imputed cost for the additional coverage is determined by IRS premium tables and subject to income, Social Security and Medicare taxes.

When a worker pays the additional premium for coverage above $50,000, part of the premium still may be taxable because he might be paying at a lower group rate – which is considered an employer fringe benefit.

While Working the Job

Even workers who are gainfully employed can have trouble making ends meet. Having life insurance that is paid for by an employer can only help, and being able to afford additional coverage at a discounted group rate helps even more.

In fact, it's a good idea for employers to consider life insurance as one component of a more comprehensive set of financial wellness benefits that may include 401(k) investment advice, college tuition savings or student loan assistance, financial education for things like buying a home and managing credit card debt, as well as benefits enrollment support. According to a recent study of workplace benefits, the number one cause of stress for American workers is the lack of financial security. By helping workers achieve greater peace of mind through educational resources and financial programs designed to help them get ahead, employers benefit from greater productivity, better engagement and less presenteeism, not to mention higher regard and loyalty for their employer – which in turn reduces costs associated with turnover.

After the Job

First and foremost, life insurance can offer immediate assistance in the wake of a worker's death by providing help with funeral costs and ongoing household expenses impacted by the sudden loss of income. The quicker a life insurance payout can be made, and the higher the amount, the better for the family and goodwill among all co-workers. Of course, the ability to optimize this benefit has much to do with carefully selecting a responsive life insurance provider and helping promote and educate workers on the value of supplementary life insurance throughout the open enrollment process.

The second reason this benefit is so important is because today's job candidates actively seek out information when it comes to vetting a potential employer. Social media and electronic communications provide a platform for current and former workers to praise or criticize employers without fear of backlash. When they see that a deceased coworker's family is treated well, they are likely to form a positive opinion and pro-actively repeat it to others.

While a good online review may not be an employer's first priority, recognize that it is becoming increasingly more significant. What we used to consider "word of mouth" can now be amplified thousands of times over via the internet across all geographical boundaries. Just as a single public relations snafu can create immeasurable damage, those employer feel-good stories can go viral as well.

Consider that if you take the time, money and resources to invest in a strong benefits package, you can leverage that effort through goodwill messaging by workers – both past and present. Even when a worker passes away, there is a silver lining in knowing that you helped him prepare for this possibility and his family's financial future is secure.

In the long run, employers profit by attracting and retaining top notch workers and providing high qualify benefits as a part of a positive company culture.

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