Group Insurance Planning

Group Life Insurance
Life Insurance is an important layer in the foundation of a competitive Employee Group Benefit Program.  Group Life Insurance can be an employer provided benefit or a voluntary benefit that pays the beneficiary of an employee a fixed sum, tax-free, upon death.

Life insurance is designed to create flexibility to those left behind by the insured when he or she dies.   Life insurance is intended to provide a means for the insured's family to pay outstanding debts, funeral expenses and settle estate taxes—without having to take on the financial burden themselves—and to supplement the family's income.  Do not underestimate the importance of life insurance, particularly in a competitive Employee Group Benefit Program.

For a relatively small cost, you can add tremendous perceived value to your employees.   Most companies provide these benefits to employees at no cost.  Group Life Insurance is usually very inexpensive in comparison to an individual life insurance policy.   Generally, the premium paid by the employer is tax deductible. The IRS has a few guidelines that employer-provided life insurance must meet in order to be considered Group Life Insurance:

• The plan must provide a general death benefit which is excludable from income; - It must be provided to employees as compensation for services performed as an employee;
• The insurance must be provided under a policy carried directly or indirectly by the employer; and  
• The amount of insurance provided to each employee must be computed under a formula that precludes individual selection of such amounts.

Employers are given some flexibility in how these plans are set up.  Benefits may be defined either on a flat dollar basis (e.g., $50,000), or on a "multiples of salary" basis (e.g., 2 times salary). These plans can also be structured to provide specific benefits for different classes of employees.  Your employee and his/her family's financial future could be severely affected by expenses such as funeral costs, outstanding debts and taxes should they die without coverage.

Group Life can be purchased as a term insurance product or as a Universal Life product.

Term Insurance

Term insurance is the simplest form of life insurance. Simply stated, group term insurance involves a yearly premium paid by the insured, or the company providing the benefit, in return for a death benefit paid by the insurer to a named beneficiary at the time of the insured's death. The yearly premium generally increases as you grow older and continues as long as stated in the policy.  Group term insurance rates are very competitive and stay fixed for a minimum of 3 years.

Universal Life Insurance

Also called flexible premium life insurance, group universal life insurance serves multiple purposes in addition to providing your beneficiary(ies) a tax-free death benefit. Group Universal life insurance is a vehicle for accumulating cash while you are still alive; it offers tax-deferred growth on the cash value during life and generally, a tax-free death benefit. Depending on interest rates, the death benefit and cash value may appreciate. You can borrow against it and even cash it in and receive the accumulated funds, known as cash value.

Traditionally, group universal life policies involve flexible annual premiums that can be modified throughout the length of the contract while still providing coverage, cash value accumulation and loan privileges throughout your lifetime.

Are There Any Other Types?

There are endless variations of group life insurance policies, but every group life policy contains term, universal life or a combination of both. The best type of insurance depends entirely on your personal circumstances.  Because there is a multitude of variations and combinations of life insurance, it is important to be aware of all of the options so that you purchase the insurance that best meets your needs. In order to determine the type of insurance that best suits your Employee Group Benefit Program, it is important to meet with a qualified, licensed insurance representative.

Group Disability Insurance

Disability Insurance is another common insurance benefit in competitive Employee Group Benefit Programs.  Disability insurance comes in two forms, short and long-term.

Short Term Disability (STD)

Group Short Term Disability (STD) is an employer provided benefit that is designed to assist an employee in replacing a % of lost income, due to either sickness or accident.  These plans establish an elimination period before the employee becomes benefit eligible and will pay benefits as long as the employee remains disabled up to a maximum number of weeks as defined in the policy.

A typical plan might reimburse an employee 60% of his or her salary after that employee has been disabled due to injury or accident for 7 days, or after the employee has been disabled due to sickness for 7 days.   The goal being that the STD plan is designed to replace a portion of an employees lost income that is sufficient to pay for the basic needs of a family.  Benefits might be limited to $750 per week, and are payable for a maximum of 26 weeks.  Disability Benefits can provide a significant financial cushion to employees when they are unable to work and earn an income.

The following are some provisions that make up the bulk of a Short Term Disability contract.

-Maximum Covered Salary:  This is determined by the employer and the total aggregate salary of the employees in the company.

-Elimination Period:  This is the amount of time that must pass before a disabled employee becomes eligible for benefits. This can be anywhere from the 1st day of disability to the 30th day.

-Duration of Benefits:  This represents how long benefits will be payable, i.e. 4 to 26 weeks.

-Residual Disability:  If an employee is disabled and then returns to work, and experiences an earnings loss of 20% or greater, he/she will still receive a benefit to offset this earnings loss.

Long Term Disability (LTD)

Long Term Disability plans are similar in nature to STD plans, but are designed to replace a percentage of income for employees who will remain disabled beyond the maximum period of a Short Term Plan. These plans are characterized by a Benefit Waiting Period (i.e. 90 days, 180 days), and benefits are usually payable to normal retirement age as long as the employee remains totally disabled.

A typical LTD plan might reimburse an employee 60% of his or her salary after the employee has been disabled for 90 days, to a maximum benefit of $5,000 per month. Benefits are payable as long as the employee remains disabled as defined by the policy or reaches the age of 65 (or other age defined by the policy).

LTD Plans provide important security to an individual and his/her family in the event that an employee cannot earn a living due to a disabling condition.  The primary goal of a LTD plan is to replace a portion of an employees lost income that is close to the employee's after-tax take home pay.

The following are some provisions that make up the bulk of a Long term Disability contract.

• Maximum Covered Salary:  This is determined by the employer and the total volume of salary of the employees in the company.
  
• Elimination Period:  This is the amount of time that must pass before a disabled employee becomes eligible for benefits. This can be anywhere from 30 to 180 days.
  
• Duration of Benefits: This represents how long benefits will be payable, i.e. to age 65, or standard retirement age.
  
• Own Occupation Protection: This feature ensures that if an employee is disabled, and cannot perform the material duties of his or her own occupation that they were trained for--they will still be considered totally disabled. This can be as short as 2 years or as long as standard retirement age (ADEA).
  
• Conversion Privilege:  The policy can be converted to an individual policy if an employee changes jobs.  
  
• Residual Disability:  If an employee is disabled and then returns to work, and experiences an earnings loss of 20% or greater, the employee will still receive a benefit to offset this earnings loss.

*Note that this is a partial list of the contractual features available in LTD contracts.

For details on what options might be available to you or company, please fill out the form and Scott Miller will be notified of your request.