The life insurance industry in Canada is a trillion-dollar industry, and it’s growing drastically every year. As of 2019, 22 million Canadians own $5 trillion in life insurance coverage. But many people still don’t understand the importance of life insurance, or how it works.
In this blog post, we’ll do our best to explain how life insurance works when provided by an employer as a part of a group plan and the importance of owning life insurance to protect your family.
What is Group Life Insurance?
Life Insurance, in general, is a way for people to protect their dependents against financial hardship in the case of death. A dependent is a person who relies on another, especially a family member, for financial support. Life insurance can help pay for a mortgage, child’s education, or even debt.
You can get life insurance through your employer (Group Life Insurance), or by purchasing it on your own. 81% of Canadians with life insurance purchase life insurance privately through an advisor and the remaining 19% of Canadians have coverage through a group plan via their employer. If purchased on your own, you would pay into a fund or pool usually monthly and in return, your dependents are protected against unwanted debt.
Group life insurance is usually provided as term insurance which means that the coverage is only provided during the term of employment. There are two different types of group life insurance that can be offered: employee basic life and dependent life.
Employee Basic Life
This is the most basic option for life insurance. It provides coverage to the employee’s dependents if they pass away.
Dependent Basic Life
This option provides coverage if any of an employee’s dependents pass away (including a spouse or a child).
How Does Group Life Insurance Work?
Life insurance is pretty similar to other types of insurance in that you pay a monthly premium and in return, your dependents will receive benefits in the case of death. However, with group life insurance, your employer either deducts your monthly premiums through your salary and pays them on your behalf or pays the premiums with no deductions to your salary. Either way, with group life insurance, the employee pays very little for a good amount of protection.
In the unfortunate case of death, the amount of coverage that an employee or their dependents will receive is based on either the employee’s earnings or a flat amount. The choice is up to the employer, but they can also mix and match by specifying different amounts of premiums for different classes of employees. For example, an employer could specify class A to have coverage of 2x their salary, and class B could have a flat coverage of $50,000.
When it comes to taxes, premiums paid by the employer on behalf of the employee are a taxable benefit, however, benefits received by the employee are non-taxable.
Things to Consider
Since this benefit is connected to or attached to employment, if an employee loses their job, changes jobs, or retires, that person may be at risk. Also, with many group plans, coverage will be reduced at the age of 65 and then terminated at age 70. There are some plans that allow you to convert to an individual life policy if you leave the group or if the coverage terminates for other reasons. However, it’s important to note that the face value of a group life insurance policy may not be enough to cover the financial burden of death on an individual’s spouse and/or dependent. Typically people have a separate life insurance policy set up outside of the group plan to combat this risk.
Simply Benefits Offerings
Simply Benefits offers both dependent life and basic life insurance, with the option for employers to choose to offer one, the other, or both! With basic life insurance, employers can choose to offer a flat or times earning amount. With dependent life, employers can select individual coverage amounts for children and spouses. Both of these are great options to increase employee engagement. Although the initial offering of life insurance may not be exciting to people, they will appreciate it as time goes on.
If you want more information about our plans, reach out firstname.lastname@example.org to speak with a member of our sales team.
Whether you have coverage through your employer or privately, life insurance is an important way to provide protection to your family in the case of an unfortunate event.
If you’re an employer, consider offering life insurance as a part of your group benefits plan. Even though it doesn’t seem like a sought after benefit among employees, they will appreciate it. You’ll also attract new talent in the workforce without having to worry about breaking the bank with benefits.
CLHIA. “Canadian Life and Health Insurance Facts”, October 5, 2020. http://clhia.uberflip.com/i/1287746-canadian-life-and-health-insurance-facts-2020/13?