Life insurance is an employee benefit frequently offered by employers. Life insurance is an insurance policy that provides, in exchange for monthly, quarterly, or annual premium payments, a lump sum of money to the designated beneficiary of an employee who dies.
Life insurance marks an employer as an employer of choice when desirable candidates select job opportunities. It is one of the comprehensive set of benefits that employees look for when the job search and choose an employer. Especially employees with families like the security of the safety net that life insurance provides.
Life insurance provides peace of mind for an employee who is concerned about how his or her family, or heirs, will make out financially in the event of his or her death. Life insurance provides a certain financial cushion for the employee's survivors if the employee's death is not due to his fault.
For example, life insurance carriers generally exclude some deaths, including death by suicide, civil commotion or riots, death occurring during military service, and other events that vary by policy.
Life insurance is purchased through a vast variety of options.
Term Life Insurance
Term life insurance, in which the insured or his employer pays a monthly, quarterly, or annual fee for the stated amount of insurance coverage is typical. No investment or cash value accumulates or is built up in a term insurance account, but the account pays out the insured value at the death of the employee.
Some term life insurance policies have a time limit. Others increase their premium fee annually as an employee grows older. Other policies have expiration dates such as at age 70. Many financial advisors recommend term life insurance as most other insurance options cost more and involve an investment component that muddies the waters.
Permanent life insurance policies that build up cash value in the policy over time are available and are more costly. Older participants pay a substantial premium in return for the benefits as time is not available to build up the cash value of the policy.
Types of Permanent Life Insurance
The most common forms of permanent life insurance are whole life, variable life, and universal life.
- Whole life insurance is insurance that you purchase as an investment because it accumulates money that you can withdraw if you experience an emergency. Whole life insurance covers you for your entire life as long as you pay the premium. You may also cash in your policy before you die and this would cause the policy to end or no longer cover you in the case of death. Most investors regard these policies as a bad investment. Despite the fact that you can cash them in, their rate of return is typically small.
- Variable life insurance provides money to your beneficiaries when you die. What makes it variable is that it allows you to allocate part of the premium you pay to a separate account that is composed of various investment funds provided by the insurance company. These may include a stock fund, money market account, and/or a bond fund. They differ from whole life in that their value fluctuates based on your investments with usually a minimum guaranteed by the insurance company.
- Universal life insurance has a savings component that grows on a tax-deferred basis. A portion of your premium is invested by the insurance company in bonds, mortgages and money market funds. The investments' return rate is credited to your policy on a tax-deferred basis. A guaranteed minimum interest rate provided by the policy, which is usually around 4%, means that, no matter how the company's investments perform, you are guaranteed a minimum return on your money.
Life insurance is an appreciated employee benefit. Sought after employees expect life insurance as a component of a comprehensive employee benefits package.