Life Insurance for Small Business Employees

Key Takeaway

Small business owners can purchase group term, whole, universal, or variable life insurance policies for their employees. Life insurance can be an affordable option to add to a benefits package, which could help make your company a more desirable workplace.

Image of laptop computer representing a branded small business employee

When a company pays the premium for a group life insurance policy, it can be less expensive than it would be if the employees each bought individual policies. Employees may also receive some life insurance education from their employer, and may also have the option of buying additional coverage at their own expense to add to the amount offered under the business’s policy.

Ins and Outs of Small Business Life Insurance

Offering a robust employee benefits package is one way to recruit and hold onto talent. If an employee leaves the company, they either lose the group life insurance coverage or may have the option to convert it to an individual policy.

Usually, only full-time employees are eligible for employer-sponsored life insurance, but some companies may also opt to cover part-time employees and contractors. For a small business to be able to purchase group life insurance policies, they may need to have a minimum number of eligible employees.

Common Types of Life Insurance Available to Small Business Owners

There are several life insurance policy options available for small businesses. Here are some of the most common types:

Term Life Insurance

Term life insurance can be an affordable option that provides coverage for a specific term (usually as long as the employee remains with the company). If the policyholder dies during this period, the beneficiaries are typically paid the death benefit, minus any outstanding policy charges. If the policyholder outlives the term of the insurance, their coverage usually expires.

Whole Life Insurance

Whole Life is usually more expensive than term life and coverage is in effect for the policyholder’s entire life (as long as required minimum premiums are paid). Premiums are fixed and part of the payment goes toward the policy’s cash value, which can provide a savings vehicle and means for employees to potentially use their whole life insurance to build wealth.

Universal Life Insurance

Universal life insurance is a flexible policy where the policyholder can usually change their premium payment amount and frequency(as long as minimums are met).Universal life can also build cash value.

Variable Life Insurance

Variable life insurance coverage is similar to universal life coverage, but the cash value grows based on the performance of specific investments such as the stock market – so the cash value potential is much more ‘variable,’ hence the name. The cash value may increase or decrease depending on the performance of the investment choices tied to the policy.

Accidental Death and Dismemberment Coverage

In addition, some companies may offer accidental death and dismemberment (AD&D) coverage as part of their life insurance policy (or as an add-on), which could pay out in the event of an accidental death or severe injury.

How to Choose the Right Life Insurance Policy

Before choosing a group life insurance program, you may want to talk to your employees to better understand their needs. It’s a good idea to factor in your workforce’s average age, overall health, and financial stability–and determine what your business can afford.

You can work with a trusted financial advisor to determine which type of group life insurance is best for your small business. A licensed insurance agent can analyze your situation and make recommendations that make sense. After you have purchased a policy for your employees, it’s a good idea to review the policy regularly to ensure that it still meets your business needs.

Wrapping Up

The cost of a group life insurance policy will vary depending on the type of policy purchased and the risks involved in your employees’ work. It can be more affordable than individual policies and may not require medical exams, making enrollment easy for employees.

Keep in mind that the premiums paid by a small business for a group life insurance policy may also be tax deductible.

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The information above is for educational use only and does not represent insurance, tax or legal advice. It is not a recommendation or solicitation to buy insurance. Please talk to your licensed insurance agent for more information about life insurance and your needs. Please consult with the appropriate professional for tax or legal advice. Guarantees are backed by the claims-paying ability of the issuing insurance company.

Article Author: Meredith Bell
Author Bio: Meredith joined Everly in 2022 and has 20+ years of experience in the life insurance industry. She has held various roles in advertising, marketing, communications, sales and distribution support, and product development. Outside of the office, Meredith lives with her daughter Kennedy and their dog Mavis. Meredith enjoys cooking, camping, gardening, hiking, and bourbon (though not always at the same time). She is a live music enthusiast and an avid reader. Her favorite quote is by Thomas Jefferson: "I cannot live without books." Meredith agrees, but would add cheese, movies, and dogs to that list.

Policies are issued by Everly Life Insurance Company (“Everly Life”), Topeka, KS. Everly Life is not licensed in the state of New York and does not solicit or transact business in New York.

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