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SmallBiz Employee Benefits – “Do I have to include Life Insurance in my Benefits Plan?”

By July 6, 2020 No Comments

Why include Life Insurance in your Benefits Plan?

Sat down with a Prospect last week and after finding out that he was Leafs fan, I figured I would quickly move on to more important matters before I became embroiled in another Leafs vs the mighty Habs “discussion”…

Me: “What would you like the Benefits Plan to cover?”

Him: “I want prescription drugs and dental coverage.”

This response is by far and away the most common due to the fact that Drugs and Dental expenses hit us on a regular basis. Nobody really thinks that much about the other benefits like Life Insurance, Accidental Death & Dismemberment (AD&D), Critical Illness, Disability, or Employee Assistance Program (EAP). And, that is simply because nobody really wants to think about those life events.

So, the short answer to the Headline question, “Do I have to include Life Insurance in my Benefits Plan?” is, “No.”

You can keep it simple with a Health Care Spending Account (HCSA) but if you determine that the HCSA is not for you and a Traditional Group Insurance (TGI) program is the way to go, then you will have to include Life Insurance…and AD&D…and quite possibly Dependent Life.

“Why do the Traditional Group Insurance carriers make me include Life Insurance?”

Follow the money…the Insurance companies like to make money and they like to make money based on Actuarial assumptions driven by Mortality and Morbidity tables. Wh, wwhh, what?

Okay, from a different angle…Health and Dental are money-in, money-out…so, the insurance companies’ bread & butter way of making money is through investing Life Insurance premiums. And, let’s also add AD&D premiums and some of them make you have Dependent Life. With these benefits, the claim incidence rate is very low and so they collect premiums, invest premiums, and every once in a while pay a claim. That’s how they make their money.

“But I don’t want to pay for those Benefits.”…Well, don’t.

Having said that, it’s not necessarily a bad thing to have Life, AD&D, and Dependent Life included in your Benefits Program. A few reasons…

  1. Chances are, most of your employees have not purchased Life Insurance on their own. You get to demonstrate your compassionate side by providing the means to offset funeral costs and perhaps to provide financial relief to those that are impacted by your employee’s death…like their close family and friends.
  2. It’s not that expensive. When looking at a minimum Life Insurance benefit of a Flat $10,000, you might be looking at it costing $1.70 per month per employee for a young group and maybe as high as $7.00 per month per employee like it is with one of my older-aged groups. It all depends on the demographics (age, sex, marital status, and occupation)…and AD&D might cost $0.50 per month. Dependent Life runs around $1.50 per month per employee with dependents.
  3. Life, AD&D, and Dependent Life premiums are a taxable benefit to the employee. So, have them pay for it and save you from having to include it in their T4s.

“Okay…how much Life Insurance do I give them access to?”

  • When it comes down to it, the minimum amount of Life Insurance that needs to be included in a TGI Benefits Program is a Flat $10,000.
  • There are a few Insurance carriers that insist on a Flat $25,000 or $30,000.
  • You can also set it up as a function of salary…1 x salary, 2 x salary, etc…

Located in Cambridge, ON Sharkey Group Insurance  provides independent Employee Benefits advice & counsel for Small Businesses across Ontario.