Life insurance is one of the most common employer-provided benefits. Let’s cover the basics of life insurance and the different types employers can offer to employees.
Types of Life Insurance
Life insurance is divided into two categories: term and permanent (sometimes also referred to as whole).
Term life insurance
Term life insurance has a specified coverage period (term), but can usually be renewed or converted into a permanent policy at the end of the term. Premiums are generally affordable initially, but can increase substantially when renewed.
Whole life insurance
Whole life insurance is a type of permanent insurance that offers life-long coverage combined with a cash-value savings component. This type of policy has higher premiums than term life. Premiums remain constant throughout the policy and a portion is invested by the company, which becomes the cash value of the policy. Whole life insurance pays a fixed amount upon death.
Universal life insurance
Universal life insurance is another type of permanent insurance policy that combines term insurance with the ability to earn interest on the cash value, paying a market rate of return. Cash value grows tax-deferred, and can be withdrawn or borrowed from the policy. It is more flexible than whole life insurance as it also allows you to change your premium payments and death benefit, within limits.
Variable life insurance
Variable life insurance is similar to universal life insurance in terms of flexibility and an investment aspect. However, instead of simply earning interest on the accumulated cash value, policy owners have more control over how to invest that cash. The ability to invest in professionally managed investment options allows for the potential to accumulate cash value while providing death benefits protection. However, there is a greater risk for loss due to this benefit.
Employers can offer a term policy, permanent coverage or both. Cost-sharing also varies, as some employers cover the full cost, while some require employees to pay the full premium (or a portion of it).
Rates for life insurance policies will vary. Women typically pay less than men, due to their longer life expectancy, and rates increase with age. Smokers also pay more than nonsmokers.
The above chart highlights the premium differences between whole life and term life insurance. Please remember that these are only estimates and that premiums are subject to change based on locality, the underwriter and individual health factors that include family history, occupational risk, and hazardous hobbies.
*Group rates may be less expensive.