Nearly all companies offer some level of life insurance to their employees.  Often this is provided by the same company that offers health insurance though it may be a minimal amount.  What companies offer their employees varies widely and many employers will offer an employee benefit of a minimal amount, usually ten to twenty-five thousand dollars, at no cost to the employees.  For optional life insurance amounts this is also true but only a few will offer more than three or four times the base salary of the employee.  It is important to note that most of the insurers will use a product known as annually renewable term insurance (ART).  This product is age banded and the rates will likely increase every five-years and this will continue until the insurance becomes too expensive for the employee to maintain.  While this type of insurance is not ideal it may be the only life insurance that the employee can obtain due to medical underwriting required in privately owned life insurance.  In general, if you look at the costs that an employee will incur over time, a privately-owned policy is less costly.  A major plus with employer sponsored insurance is that everyone can be offered life insurance and it is easy to obtain. There are several types of life insurance.  The most well-known types are listed below.

Employer Provided Term

Typically, employers offer their employees either a policy with a fixed dollar payoff amount or a multiple payoff of the employee’s salary.  This is annually renewable.  The rates are based on age and the premiums increase with age.  Generally, some amount of coverage is guaranteed without medical qualification.  Additionally, on larger death benefits, the insurance provider will request an evidence of insurability (qualification based on health) before additional coverage is offered.    In many cases the coverage cost at age 65 is much higher than can be purchased in the open market.  Coverage can often be continued (portable) if an employee terminates.  While the policy may be portable it is often at a much higher premium since the health is unknown.  Many insurers use “smoker” rates on these portable conversions.

Term Insurance (formerly known as Terminating Insurance)

Term insurance provides inexpensive coverage and is for a fixed period.  Usually, 10-year, 20-year and 30- years.  The longer the term the higher the cost.  Some term insurance can be converted to permanent insurance during the course of the term.  This is not always the case and if you convert late in the policy the cost will be significantly higher.

Whole Life

Whole life is the oldest form of life insurance.  Whole life is generally offered by mutual life insurance companies.  In Whole Life the mutual company shares the risk will all of the policy owners and for this reason underwriting is more involved.  Whole Life comes in a few variations on payment.  One option is Whole Life with continuous payment for the insured’s life time (15-75) .  Other variations are policies that are guaranteed that no further premiums are due based on age or number of years.  Whole Life builds cash value and dividends are paid by the insurance company.

Universal Life

Universal life is essentially a term policy (as described above) that the insured will pay for his or her entire life.  While it is more expensive than term it does allow the insured to change premium frequency and premium amount.  While this is a nice feature it may cause problems later in the policy and require larger and more frequent premiums to be paid to maintain coverage.  It is important to note that the cost of insurance increases every year.  If this kind of policy is selected it is a very good idea to read the fine print.  Within the Universal Life family there are two types.  One is Variable Universal life which is tied to the stock market.  If the market is good these policies will function well.  Since the policy requires a good market they normally do not have a guaranteed death benefit but some do.  There is another variation called Indexed Universal life.  While not directly invested in the stock market it is tied to an stock index or multiple stock indexes.  These are complicated financial policies and you should review carefully the terms and conditions before you sign a contract.