How Employers Use Life Insurance as an Employee Benefit

Why Life Insurance Is a Popular Employer Benefit

For many employees, life insurance through work is their first—and sometimes only—policy. It provides peace of mind and financial security for loved ones in case of the unexpected.

Key Benefits for Employers:

• Enhances overall compensation without big costs

• Helps recruit and retain top talent

• Shows long-term investment in employee well-being

• May offer tax advantages for the business

Group Life Insurance: The Standard Option

Most employers offer group term life insurance as a baseline benefit. It’s simple, affordable, and provides immediate value.

How It Works:

• The company pays all or part of the premium

• Coverage is typically 1–2x the employee’s annual salary

• Employees may have the option to buy additional coverage

• No medical exam required for basic coverage amounts

Pros:

• Free or low-cost for employees

• Easy to enroll and manage

• Great for people who may not qualify individually

Cons:

• Coverage ends when employment ends (unless it’s portable)

• May not be enough for families with higher financial needs

Voluntary Life Insurance: Custom Add-Ons

Some employers allow employees to purchase extra life insurance through payroll deductions.

Features:

• Employees can choose higher coverage amounts

• Spouse and child coverage may be available

• Group rates are often lower than personal policies

Good to Know: Voluntary policies may require medical underwriting if the amount is above a certain limit or outside the initial enrollment period.

Executive Bonus Plans: Perks for High-Level Talent

For top executives and key employees, companies may offer life insurance as part of a Section 162 Executive Bonus Plan.

How It Works:

• The employer pays the premium for a permanent life insurance policy owned by the employee

• The premium is considered a taxable bonus to the employee

• The employee names their own beneficiary and gains permanent coverage

Benefits:

• Helps recruit and retain top performers

• Offers a tax-advantaged benefit structure

• Builds cash value over time (if using whole or universal life)

Employer Advantages:

• No need to commit to a formal plan or vesting schedule

• Bonuses are tax-deductible as compensation

Split-Dollar Life Insurance: Shared Ownership

Another advanced strategy is split-dollar life insurance, where the employer and employee share the costs and benefits of a permanent life policy.

Types:

• Loan arrangement: The employer lends the money to pay premiums

• Economic benefit arrangement: The employer owns the policy and allows the employee to designate beneficiaries

This type of plan is more complex and usually reserved for high-level executives in large companies.

Life Insurance as Part of Total Rewards

In today’s job market, employees expect more than just a paycheck. A strong benefits package—including life insurance—can set an employer apart.

Other Life Insurance-Based Perks:

• Accidental death and dismemberment (AD&D): Additional payout for accidental deaths or injuries

• Portability: Allows employees to keep coverage if they leave the company

• Conversion options: Lets employees convert term coverage to permanent life insurance without a medical exam

These extras add flexibility and value, especially for employees planning major life changes.

Attracting and Retaining Talent with Life Insurance

When companies offer meaningful life insurance options, it signals they care about their people’s futures—not just their work performance.

For Recruitment:

• Life insurance adds value to the offer package

• Appealing to candidates with families or dependents

• Competitive edge over companies with weaker benefits

For Retention:

• Executive plans foster long-term loyalty

• Portability and cash value options give employees a reason to stay

• Benefits can grow with tenure or promotions

Comparison Table: Common Employer Life Insurance Options

Final Thoughts

Life insurance is more than just a benefit—it’s a strategic asset in your HR toolkit. Whether you’re offering basic group coverage or crafting executive-level perks, these options show your employees that their future matters. In turn, you’ll build a stronger, more loyal workforce ready to grow with your company.