Employee Basic Life Insurance in Canada

Employee basic life insurance is a foundational component of many workplace benefits packages.

This form of group life insurance provides affordable coverage to employees, often at little or no cost.

Understanding what basic employer-sponsored life insurance entails and how it works can help you make informed decisions about your financial planning.

What is Employee Basic Life Insurance?

Employee basic life insurance is a type of group life insurance offered by employers. It provides a set death benefit to employees, typically at low or no cost.

With basic life insurance, the employer purchases a group policy, and each enrolled employee receives a certificate of insurance. Though the employer holds the master policy, employees are the beneficiaries of the coverage.

Employee Basic life insurance key features include:

• Guaranteed coverage with no medical questions or exams, up to a set limit
• Low premium costs, often paid entirely by the employer
• Pre-determined death benefit amount based on earnings or a flat rate
• Annual renewable term insurance (policy renews each year)
• Coverage duration tied to length of employment

According to Statistics Canada, over 5 million Canadian employees have access to basic life insurance through their workplace. This type of coverage provides a baseline of protection at an affordable rate.

How Does Basic Employee Life Insurance Work?

When employers provide basic life insurance, they purchase a group policy from an insurance carrier. Though the employer owns the policy, individual employees are issued insurance certificates that outline their coverage level.

Here’s an overview of how basic life insurance works:

• The employer chooses the type of death benefit amount: either a multiple of the employee’s salary (such as 1x or 2x earnings) or a flat amount (like $50,000).
• The insurer prices the group policy based on the demographics of the entire employee group, which results in lower premium costs.
• Employees enroll in basic coverage up to a set limit, the non-evidence maximum, without any health questions.
• The employer pays all or most of the policy premiums. If employees pay a share, it is typically via payroll deduction.
• Coverage stays in effect while employed, up to any age reductions stated in the policy.
• If employment ends, employees can usually convert the policy to an individual plan.

The premium costs are low because insurers can spread the risk over the wider employee group. Of course, the death benefit is also low compared to individual life insurance plans. But basic coverage can pay for some final expenses or provide income replacement.

Read more : Employee benefits in Canada

Do You Need Basic Employee Life Insurance?

Here are some key considerations regarding basic life insurance as part of your financial safety net:

Pros of Basic Employee Life Insurance

• Guaranteed coverage with no medical underwriting up to the non-evidence maximum ranges from $100,000 to $500,000. This can benefit employees who may not qualify for individual policies.
• Low or no cost to employees makes this an affordable way to gain protection. Premiums are either covered by the employer or shared at reasonable group rates.
• Fast and efficient enrollment comes through the workplace: no lengthy applications or health screenings.
• Coverage stays in place while employed. Employees don’t have to re-apply each year.

Cons of Basic Employee Life Insurance

• The benefit amount should generally be higher to replace income or support dependents. One or two times the salary provides limited protection.
• Portability is not guaranteed. If employment ends, converting to individual policies can be expensive.
• Benefits are reduced at certain ages, usually starting at age 65. The terms end entirely when the age of 70 is reached in most cases.
• Group policy can end if the employer switches plans. Employees could lose coverage entirely.

While basic life insurance can be valuable, it may only partially cover your family’s financial needs. Use online calculators or speak with an advisor to determine an appropriate level of life insurance for your unique situation. Many Canadians supplement their basic coverage with private policies.

Basic Employee Life Insurance vs. Supplemental & Voluntary Policies

In addition to basic group life insurance, many employers offer supplemental or voluntary life coverage. These policies allow employees to purchase extra insurance at group plan rates.

Here’s how basic and supplemental life insurance compare:

Basic Employee Life Insurance

• Included automatically with employment
• Lower benefit amount
• Paid wholly or partly by the employer
• Guaranteed issue up to non-evidence max

Supplemental & Voluntary Policies

• Optional add-on coverage
• Higher benefit options
• The employee pays all premiums
• Underwriting required above certain limits

Supplemental coverage can expand the amount of life insurance protection for employees who want more than the basic plan provides. Premiums are deducted conveniently via payroll. And guaranteed issue amounts are higher than conversion policies.

For families with more excellent income replacement and final expense needs, combining basic and voluntary insurance can be an optimal strategy.

Key Takeaways About Basic Employee Life Insurance

• It’s a guaranteed-issue group term life policy offered through employers. All eligible staff can receive coverage up to the non-evidence maximum.
• Low premiums make basic insurance affordable. The employer often covers the full cost for employees.
• Benefits are limited, usually based on earnings. Payouts may not sufficiently support dependents.
• Supplemental policies allow employees to add higher coverage at group plan rates.
• Basic life insurance can provide some protection but may need to be supplemented based on each individual’s needs.
• If employment ends, converting to private policies is an option, but it can be costly. Portability is not guaranteed.

Check with your employer about your current basic life coverage. Understand options to continue or convert policies if you leave. Use insurance calculators to determine if supplemental coverage is right for your situation.

Frequently Asked Questions About Basic Employee Life Insurance

Conclusion

Basic life insurance allows employers to provide affordable, guaranteed coverage for staff. Though death benefits are modest, they can offer some financial security.

For higher-income earners and families with more significant needs, voluntary supplemental policies are a smart choice. Work closely with benefits administrators and financial advisors to ensure you have sufficient coverage.

As an employee, enroll in your basic life insurance plan when eligible. Also review the policy annually and when life circumstances change. While not a complete solution, basic life insurance is a fundamental component of workplace benefits.