Do employers offer life insurance?
[social_share]Employers sometimes often offer life insurance policies, which may be cheaper but can also be less flexible. It is a good idea to examine these policies before deciding to rely solely upon one.
Employers previously offerred life insurance policies as an employee benefit as they carried some tax advantages. However, these tax advantages used to be greater, and so many of these policies are now a legacy. There are also some advantages to bulk buying a large number of policies, as the premiums will be lower than they would be if purchased separately. Some insurance companies specialise in selling life insurance to large companies, without maintaining a retail division.
When an employer-sponsored policy is available, they sometimes allow the employee either to buy a subsidised policy or to add to the insurance offered. This form of life insurance, offered by the employer but topped up by the employee, can be the main policy relied upon by some people.
One advantage of this type of life insurance is that often no medical examination is required. This is because, with the employer buying in bulk, the life insurance company can reasonably predict the chances of a number of people being in poor health and so can adjust their premiums on this basis.
The problem with these insurance policies is that they tend to be very general and may not be geared toward that particular policy holder (the employee). These policies are likely to insure either that the beneficiaries are paid a certain multiple of the policy holder’s salary, or a certain percentage of the salary for a number of years. However, the beneficiaries may have a greater or lesser degree of dependency on the policy holder, and may require a larger sum. It can often be the case that, even without the tax advantage and the price effect from bulk buying, the policy holder may be able to purchase a better and even less expensive policy individually.
These insurance policies offered as a benefit should not be confused with key man insurance, which is also known as “dead peasant insurance.” This type of insurance policy pays the company and not the dependents, as the company may find itself in a difficult financial position if this key person dies.
