For small businesses, life insurance can be one of the most important benefits employers can offer to their employees. Providing for loved ones in the event of an untimely death is one of the most valuable investments a person can make, ensuring that family members can pay their daily expenses while recovering from the passing of an irreplaceable family member.
As a small business owner, offering life insurance isn't just a wise financial decision; it's a way to provide financial security to your workforce and their families.
According to the U.S. Bureau of Labor Statistics, life insurance was only available to 55% of private industry workers 
as of March 2022. From an employer's perspective, offering life insurance as a part of the benefits package serves as a compelling tool to attract and retain top talent. High-quality benefits demonstrate that the company values its employees' well-being and the financial security of their families.
By catering to the long-term financial needs of employees, companies position themselves as employers of choice in competitive job markets, ensuring they attract and keep the best individuals in their field.
Life insurance ensures the financial stability of a policyholder’s family in the event of their passing. It's a critical financial planning tool that comes in various forms to suit different needs and preferences. Each of the primary life insurance policy types offers a unique set of features and benefits:
Regardless of which type the policyholder chooses, they will be responsible for paying their premiums each month to continue their policy. A benefit will be paid out to their beneficiaries after the policyholder’s death, with the exact amount determined by their chosen plan.
Understanding these primary types of life insurance policies will enable small business employees to make informed decisions that align with their financial planning and family obligations, securing peace of mind for their future.
Before purchasing a life insurance policy for your company, it's crucial to conduct a thorough assessment of existing financial responsibilities and determine the level of coverage you can extend to your employees. Though it may be time-consuming, a well-rounded analysis can serve as a valuable foundation when selecting a life insurance plan that adequately cushions your employees from undue financial strain. When determining the right life insurance plan for your company, consider the following factors:
Your assessment should begin with a full accounting of any ongoing expenses and debts that you and your business partners are responsible for. Inventory costs, payroll, loans, rent, utilities, and other regular business expenses should be top of mind during your evaluation, but don’t forget about more infrequent costs like severance pay or any profit-sharing agreements your business may have.
There’s more to bridging a financial gap than just accounting for everyday expenses. To properly calculate how much life insurance your business partners and employees will need, keep an eye on long-term and future expenses. Investments, retirement savings for your employees, education reimbursements are all a part of your business’ life insurance equation.
Keep in mind that the cost of living tends to increase over time due to inflation. To ensure your employees have enough coverage, consider periodically reviewing and adjusting your coverage.
As you might guess, businesses with hundreds or thousands of employees will need to pay more for life insurance policies. As a small business owner, you won’t have to pay as much for life insurance benefits as your larger counterparts. However, you should still take stock of your total employee count and budget accordingly.
Don’t forget that you’re not just providing financial security to your employees and business partners. Policyholders that assign multiple beneficiaries, including spouses, children, estates, or charities may want to purchase a plan with increased coverage, so be prepared to offer policies that meet your employees’ needs.
In any case, small business owners should consult with a financial advisor or insurance agent who can provide personalized guidance based on their company’s unique circumstances and financial goals.
Offering life insurance policies alongside health and disability plans creates a wide safety net that gives your employees increased coverage and security. This trio of insurance plans works well together, offering stronger financial protections against life's unforeseen obstacles:
This three-pronged approach is a sign of careful financial planning and shields policyholders and their families from the financial repercussions of health-related issues, disabilities, or an unexpected death.
No, employers are not legally required to offer life insurance to their employees. However, some states may have specific rules or incentives for offering such benefits, so it's recommended for employers to consult with a legal or HR expert for more information.
Life insurance premiums paid by employers can sometimes be considered as taxable income for the employee depending on several factors including the type of policy, the amount of coverage, and specific governmental tax rules. Generally, if the employer pays premiums on a policy that pays a death benefit of up to $50,000, the premiums are not considered taxable income to the employee. However, if the coverage exceeds this amount, the costs of the premiums for coverage over $50,000 are taxable. It's recommended for employers to consult with a professional accountant for more information.
As part of the Affordable Care Act , small businesses can apply for tax credits related to their company’s insurance policies. Life insurance premiums are usually considered a business expense, which means they can be deductible if they meet certain criteria:
Consult a professional accountant for more information on any tax deductions your company may qualify for.
Yes, employees can typically add beneficiaries and update their coverage details. Employees generally have the flexibility to choose and change their beneficiaries and coverage details as their personal circumstances evolve. For example, major life events, such as marriage or childbirth, would allow policyholders to update their beneficiaries accordingly.
For group life insurance policies, coverage generally ends when a policyholder leaves the company that provided their life insurance policy. However, many policies may offer a conversion privilege, which allows the employee to convert their group policy into an individual policy without providing evidence of insurability within a specific time frame. Policyholders should know that the premiums for the individual policy might be higher than those for the group policy. It's recommended for employees to check the specific details of their policy or consult with their HR department to understand their options upon leaving the company.
In a constantly evolving business landscape, small business employees stand to gain immensely through the security and stability of affordable, effective life insurance policies. Life insurance can act as a shield against the unpredictable nature of life and turn any small business into a magnet for talent.
For small businesses, providing a wide array of life insurance policies is a step towards building an organization that is not just successful, but also humane, considerate, and deeply connected to the well-being of their employees.
Being well-prepared and well-informed is the first step in picking the right policies for your team. Learn how your business can obtain affordable life, health and disability insurance coverage and protect your employees from life’s unforeseen circumstances.
