Offering a competitive and generous employee benefits package can be an effective way to retain current talent at your organization and recruit new talent in the workplace. While there’s no one-size-fits-all way to build a competitive benefits package for every business, most employees agree that an attractive package should contain some type of life insurance. In addition to covering daily living expenses, life insurance can help cover any outstanding debts in the event of the death of the employee. Here are the most common types of life insurance and how they can enhance an employee benefits package.
Term Life Insurance
Term life insurance is simple, inexpensive, and fairly easy to understand. What makes it an excellent choice for nearly all employees is that it provides the benefits that most people need without all the extras that they don’t. Implied by the name, term life insurance is good for a set amount of time, such as one year, 10 years, 20 years, or more. If the policyholder dies while covered under term life insurance, his or her beneficiaries receive a payout or death benefit. However, if the insured individual dies after the term has expired, there is no payout.
Term life insurance requires premiums which are typically based on a person’s age, overall health, and life expectancy. As term life insurance is only effective for a temporary amount of time and only pays out upon the death of the insured individual, it’s one of the most affordable types of life insurance. There are several types of term life insurance to choose from, such as level term or level-premium, yearly renewable term, and decreasing term. Each has its own set of benefits which make them well-suited for individuals of all ages. However, term life insurance in general is best suited for younger people with families.
Whole Life Insurance
Whole life insurance is a contract containing premiums as well as insurance and investment components. Under the insurance component, the insured individual’s family receives a predetermined amount when the policyholder dies. Under the investment component, a cash value is accumulated and the insured individual can withdraw or borrow against it. With whole life insurance, policyholders have the ability to accumulate wealth while premium payments go towards insurance costs. These regular premium payments also contribute to equity growth in savings accounts. As the name suggests, whole life insurance covers the insured individual for his or her entire life.
There are different types of whole life insurance that are suitable for different groups of people. In some instances, whole life insurance can provide family members with funding after the death of a breadwinner. Whole life insurance can also be useful when liquidating business debts, paying off mortgages, and to ensure that cash is readily available for family members in the event of a serious illness, accident, or death. Unlike term life insurance that only pays out after the death of the insured individual, whole life insurance policies have living benefits and a buildup of cash for family members after the passing of the insured.
Universal Life Insurance
Universal life insurance is a type of cash value life insurance that offers the low-cost protection of term life insurance with the savings element of whole life insurance. It also offers flexible premiums, a tax-deferred investment opportunity to the insured individual, and a level or increasing death benefit. With universal life insurance, premiums are paid into the policy’s account value where it earns interest. Each month, certain deductions are made from the account value, such as fees for insurance protection. The insured individual then has the option to make withdrawals or take loans from the account value for personal needs.
There are several key uses for universal life insurance that makes it popular amongst employees. First, it provides for families in the event of a loss of income or when mortgage or educational funds are needed. Funds can also be used for business planning, estate, and other special needs. As premiums are flexible, the insured gets to decide the amount of life insurance and the amount of premiums subject to policy minimums. The insurance also offers a death benefit that includes life insurance proceeds that are income tax free to the beneficiaries.
Variable Life Insurance
Variable life insurance is a form of permanent life insurance where the cash value is invested in a number of sub-accounts, similar to mutual funds. Variable life insurance policies also offer certain tax benefits for policyholders, such as the ability to use the cash value on a tax-benefited basis. The investment features are designed to help protect the employee and their family and provide access to professionally managed investments that can help employees accumulate money for future needs. The policy can then be used for a variety of financial needs, such as long-term care, education funding, and retirement planning.
Variable life insurance acts as a permanent renewable term life policy for the insured with a cash value. While a policyholder will have to pay insurance premiums into the cash value, this cash value is then invested into sub accounts. The owner of the policy has discretion over which accounts money is invested into. Each month, insurance charges are pulled from the cash value. Over time, a large cash value can be built. In time, the cash value will likely grow large enough that the owner will no longer need to make payments. Variable life insurance policies can also be used as investment accounts which can be passed on free of tax.
When applying for a job, many applicants seek a competitive employee benefits package. Perks such as life insurance can protect an employee’s family and loved ones, help an employee pay off debts and other expenses, and provide an overall feeling of financial security. Many employers offer a type of supplementary life insurance coverage that meets the needs of most families. Business Benefits Group (BBG) offers life insurance in multiple forms as part of a competitive benefits package for our clients. To learn more the different types of life insurance policies available, request a consultation from our life insurance experts today.