Group life insurance is a single contract that provides coverage to a group of people, typically those who work for the same company. The employer owns the policy, which covers the employees. Your beneficiaries will get a payout if you pass away while covered by group insurance. In a competitive job market, a group benefits plan is a great way to separate yourself from the competition. A benefits plan can help retain staff, improve morale and productivity, and keep your employees healthy and at work.
What is Employee Life Insurance?
With employee life insurance, an employer pays the premiums for a life insurance policy when the employee meets the eligibility criteria. Following a death, a lump sum is paid to the employee’s beneficiary. This money can used to help cover funeral costs, outstanding debts or loss of crucial income. Employee life insurance is optional for employers to provide to employees. However, it’s a common part of employee benefit packages and as with all employee benefits, can help you attract and retain good employees.
What is a Group Benefits Plan?
A group benefits plan helps employees cover the cost of things that provincial health care plans may not pay for, including certain prescription drugs, dental, hospital, vision, paramedical and ambulance services. You can also combine your group benefits plan with a retirement and savings plan to help your employees reach their financial and retirement goals.
Benefit Schedule
The amount of coverage is generally based on either the employee’s earnings or a flat amount. Earnings for group life insurance coverage typically only include salary. However, it is possible to include commission income and sometimes bonuses. An earnings-based benefit schedule will pay a benefit based on a multiple of earnings (e.g. 1 x salary, 2 x salary, etc.). A flat benefit schedule does not pay a benefit related to earnings, rather all members of a class have the same level of coverage, typically ranging from $25,000 to $500,000 (as pre-determined by the plan sponsor). It is common to have different benefit schedules for different classes. For example, an “executive” class could have a benefit schedule of 2 x salary whereas another class made up of “all other employees” could have a flat benefit schedule of $50,000.
Benefit Maximum
Regardless of the benefit schedule, all group life insurance plans are subject to a maximum level of coverage. The benefit maximum places an upper limit on the basic group life insurance coverage available to employees.
Non-Evidence Maximum (NEM)
The amount of basic life insurance coverage above which the employee must provide evidence of insurability is referred to as the non-evidence maximum. The NEM is a very important feature of a basic group life insurance plan as it represents the minimum amount of coverage for which all employees are eligible (subject to income requirements). For employees who may not qualify for an individual life insurance policy, the NEM allows them to obtain coverage through their group benefit plan. Generally, higher non-evidence maximums are available to larger groups and to groups considered to be lesser risks.
Waiver of Premium
Employees who become totally and permanently disabled while insured and continue to be so disabled for a period of at least 6 months will continue to have life insurance coverage with no premium requirement. Waiver of premium is usually only available to employees under the age of 65 who are under the regular care of a physician.
Conversion Privilege
If the group life insurance coverage terminates for an employee because employment or membership in the plan terminates or because he or she no longer qualifies for coverage, the plan can be converted into an individual policy. Typically, the policy is convertible to either a one year convertible term policy (for employees under the age of 65), a term to age 65 policy or a regular plan of permanent insurance. There is usually a maximum amount of insurance that can be converted (typically $200,000). The application to convert the policy and the first month of premium must be received by the insurer within 31 days of termination of the employee’s insurance.
The premium for the converted policy is based on the type of policy and the age, sex and smoking status of the employee. Medical evidence is not required to convert the policy. Therefore, the conversion privilege is mainly of benefit to employees who would otherwise be declined for life insurance coverage or who are only eligible for coverage based on a substandard risk. For employees who qualify for standard rates, there are usually more competitively priced policies than the conversion options.
Benefit Reduction
The basic group life insurance coverage is usually reduced at age 65 and terminates at age 70 or retirement. Coverage is reduced to a set percentage of the previous coverage (usually 50%) or to a flat amount. For example, an employee who had $100,000 of basic group life coverage before turning 65 would typically have that coverage reduced to $50,000 upon reaching the age of 65.
Benefits for Your Company
- Help improve morale and increase productivity
- Can be less expensive than providing salary increases as there are no additional increases in CPP, EI or Workers’ Compensation rates
- Premiums paid on group benefits can be written off as a business expense
- Maintain a competitive edge in the job market
- Attract and keep key employees
Benefits for Your Employees
- Employees can get coverage at a reduced cost compared to most personal plans
- Help protect your employees and their family’s health
- Help reduce financial stress if something happens
Base Group Benefits
- Prescription drugs: A healthy workforce is a productive workforce. Prescription drug coverage can help bridge the gap between provincial health insurance plans and the coverage your members and their families need
- Dentalcare: Employees identify dental coverage as one of the most valued benefits, but a dentist visit can be expensive. Dental benefits will save your employees from high costs and protect their dental health
- Disability programs: Lost productivity, absenteeism, rising drug costs and disability affect your bottom line. Create a seamless wellness and disability management program that helps control costs and supports recovery
- Life, critical illness and accident insurance: You can help your employees in case tragedy strikes. There are flexible options for you to provide financial support for your employees and their families in case of an illness, accident or death
Specialty Group Benefits
- Health care spending accounts: Provide your employees with flexible, tax-effective coverage for health-related expenses not included in their plan or to top up their benefits
- Expats or new to Canada insurance: The job market is global. Make sure your employees coming to Canada or moving abroad have the health coverage they need
- Benefits for retirees or self-employed: Provide your employees with comprehensive health and dental coverage into retirement so they can focus on enjoying what they’ve worked hard to obtain
- Emergency medical coverage and travel assistance: Improve your plan with out-of-country emergency medical coverage and worldwide travel assistance for your employees wherever and whenever they need it
Taxation for Employee Life Insurance
Group life insurance premiums paid by the employer on behalf of the employee are a taxable benefit to the employee. Premiums paid by the employee (e.g., for additional or dependent coverage) aren’t a taxable benefit to the employee. Regardless of who pays the premium, the death benefit paid to the beneficiary is always tax-free.
