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The Ultimate Guide to Group Life Insurance in Canada

By Arthur Dubois | Published on 29 Sep 2023

group life insurance

    Group life insurance provides valuable protection and peace of mind for employees and their families in Canada. In this comprehensive guide, we’ll look into the details of group life insurance, its importance, key features and different types. Finally, we’ll help you navigate the process of obtaining coverage. 

    Perhaps you are an employer considering offering group life insurance benefits or an individual seeking to understand the options available. Either way, this guide will equip you with the knowledge needed to make wise decisions.

    What Is Group Life Insurance?

    Group life insurance creates a contract between the employer and an insurance company. It covers a group of employees under a single policy, providing life insurance to the employees’ families when they die. This common employee benefit helps attract and retain talented individuals.

    Typically, group life insurance takes the form of a term life insurance coverage. This service offers a multiple of the employee’s annual salary or a fixed amount determined by the employer. This ensures that employees’ loved ones have financial protection in the event of their untimely demise. In turn, it allows them to cope with any expenses that may arise.

    Why Offer Group Life Insurance?

    Group life insurance policies often get offered as part of a comprehensive employee benefits package. These packages may include health insurance, retirement plans and other perks to enhance the overall well-being of employees.

    With group life insurance, employees get coverage without having to undergo medical examinations or extensive health questionnaires. This makes it a convenient option for employees, as it eliminates the need for individual underwriting. It also ensures that employees with pre-existing medical conditions can still access life insurance coverage.

    Group life insurance policies usually get renewed annually and the employer pays the premiums. The cost of the premiums is often based on factors such as the age and salary of the employees, as well as the overall size of the group being insured.

    Coverage Details

    Usually, group life insurance coverage only lasts for the duration of the worker’s employment with the company. If an employee leaves, they may convert their coverage into an individual policy or continue coverage under certain circumstances. 

    Additionally, group life insurance coverage often includes additional benefits, such as accidental death and dismemberment coverage. This provides employees with added financial protection after an accident resulting in death or the loss of a limb. These additional benefits can provide employees and their families with a sense of security and peace of mind.

    Cost and Premiums

    The cost of your employee benefits plan is influenced by various factors. The insurance company sets the premium based on the level of risk it assumes. Naturally, this fluctuates with the average age and gender of the workforce and the industry. It will likely factor in any past claims experiences arising from a previous plan.

    Therefore, organizations with higher claims will have higher premiums and, conversely, those with lower claims will enjoy lower premiums. Smaller organizations usually have benefits like life insurance “pooled.” In this case, claims from multiple organizations get grouped together, allowing mutual support and thus stabilizing premiums.

    When sponsoring an employee benefit plan, decide who bears its cost with sustainability in mind. In some cases, employers cover the entire premium, making it a tax-deductible business expense. However, this approach might cost dearly and may lead employees to overlook the value of the plan.

    Alternatively, employers and employees could share the cost, with the most common arrangement being an 80/20 split. This method generally makes employees more cost-conscious. This option helps companies sponsoring a plan for the first time.

    Employers should consider the affordability of premiums and evaluate different options to ensure a sustainable and cost-effective solution. By comparing group insurance quotes and exploring different options, employers can strike a balance between comprehensive coverage and affordable costs.

    Other Coverages Options and Benefits

    Alongside vital group life insurance, employers in Canada should consider other coverage options and benefits to ensure holistic employee well-being. Many group insurance packages incorporate extended healthcare benefits to help maintain overall employee health and satisfaction.

    Extended Health Care Benefits

    Extended healthcare benefits provide employees access to a range of medical services not covered under the Canadian Health Act. These could include dental insurance, medication coverage and vision care. Other health benefits often covered in group insurance include physiotherapy, chiropractic services and mental health support.

    Disability Insurance

    For disability insurance, employees need both short-term and long-term disability insurance. This ensures employees have income when unable to work due to illness or injury. Typically, workers use short-term benefits for up to six months, then switch to long-term plans if needed.

    Wellness Programs

    Employers increasingly add wellness programs to their benefits packages. They offer services like fitness memberships, nutritional counseling, and stress management resources. These all aim to promote a healthier lifestyle while preemptively addressing health issues.

    Telemedicine Services

    Telemedicine services allow employees to access medical consultations and services remotely. This helps address immediate health concerns, while reducing the need for in-person visits. Further, it provides a convenient and timely healthcare solution, especially during unprecedented times or emergencies.

    Retirement Savings Plans

    Incorporating retirement savings plans helps employees build a robust financial base for their future. This type of program ensures long-term financial stability and peace of mind. Employees and employers can contribute based on an agreed-upon ratio.

    The Process of Getting Group Life Insurance For Your Employees

    The process of obtaining group life insurance involves several key steps and considerations. Let’s explore each stage in detail.

    Eligibility Criteria

    Employers must establish eligibility criteria for employees to participate in the group life insurance program. Common factors considered may include length of employment, hours worked per week and job classification. To avoid conflict, employers must clearly communicate the eligibility requirements to all employees.

    Additionally, employers may need to provide evidence of insurability for certain employees, especially if coverage amounts exceed a predetermined threshold. This may involve completing medical questionnaires or undergoing medical examinations.

    Application Process

    The application process for group life insurance typically involves the employer working closely with an insurance provider. Employers must provide accurate employee data, including personal information – like names, addresses and social insurance numbers – to ensure proper coverage. The insurance provider will provide the necessary application forms and guidance to facilitate the enrollment process.

    Above all, employers should review terms and conditions of the policy to check coverage details, premium requirements and renewal provisions. Communication with employees regarding the enrollment process and the benefits offered ensures a smooth and efficient application process.

    Claim Process

    In the unfortunate event of an employee’s death, the claims process begins. Beneficiaries or the employer must notify the insurance provider promptly and provide the necessary documentation. For instance, the insurer requires a death certificate and other supporting information.

    The insurance provider will review the claim and, upon validation, disburse the insurance proceeds to the designated beneficiaries. The claim process may involve additional steps depending on the circumstances surrounding the insured individual’s demise. Employers should provide support to the employees’ families during this challenging time and guide them through the claims process.

    Group Life Insurance in Canada: The Bottom Line

    Group life insurance in Canada offers invaluable employee benefits to protect employees’ families in the event of an untimely death. Employers can demonstrate their commitment to employee well-being by providing comprehensive coverage that addresses their workforce’s needs.

    Understanding the role, key features, types and the process of obtaining group life insurance empowers employers and individuals. Now, you can make informed decisions and navigate the complexities of this valuable financial tool. By prioritizing the well-being of employees and their families, employers create a work environment that fosters loyalty, engagement and stability.

    Whether you seek to offer group life insurance benefits or evaluate your coverage options, this ultimate guide provides new knowledge and insights. Going forward, you can embark on a rewarding journey towards financial security.

    FAQs About Group Life Insurance in Canada

    How does group life insurance work in Canada?

    Group life insurance in Canada operates as a single policy where an employer provides coverage for a group of employees. The policy offers a death benefit that gets paid out to the designated beneficiaries of the insured employees upon their deaths. Employers typically pay the premiums, but employees may share the cost in some arrangements. The coverage often extends to dependents, since it’s usually more cost-effective compared to individual life insurance policies.

    Are group life insurance benefits taxable for employees in Canada?

    In Canada, the benefits received from a group life insurance policy are generally not considered taxable income for the beneficiaries. They are also known as death benefits. However, if an employer pays the premiums on behalf of the employees, those premiums become a taxable benefit for the employee. As such, they may become subject to income tax on the premium amount paid on their behalf.

    Are group life insurance premiums tax deductible for businesses in Canada?

    Yes, in Canada, when businesses pay premiums for group life insurance, those premiums are generally considered a business expense. Thus, are tax-deductible for the business. However, businesses should consult with a tax professional or the Canada Revenue Agency for specific conditions and limitations.

    How does group term life insurance affect payroll costs in Canada?

    Group term life insurance impacts payroll costs in Canada as it typically becomes part of an employee’s total compensation package. If employers require employees to contribute to the premiums, this would get deducted from their payroll. When employers cover the entire premium, it becomes a non-monetary benefit. In turn, that indirectly influences payroll costs by affecting overall compensation and potentially the employer’s contributions to payroll taxes.

    Can you borrow against group life insurance in Canada?

    Group life insurance policies in Canada, particularly term life insurance, do not have a cash value. Therefore, policyholders cannot borrow against them. Borrowing against a life insurance policy works for whole or permanent life insurance, which accrues cash value over time.

    How much is group life insurance in Canada?

    The cost of group life insurance in Canada can vary widely depending on several factors. These include the group’s size and demographics (such as age and health status), the industry and the amount of coverage. Employers often work with insurance brokers to compare multiple group insurance quotes and determine the best options for their budget.

    Is group life insurance cheaper than individual life insurance in Canada?

    Yes, generally, group life insurance tends to be cheaper than individual life insurance in Canada. Since the risk gets spread across multiple individuals within the group, it reduces the cost per individual. Additionally, administrative costs stay lower for insurers when dealing with a group policy compared to multiple individual policies. Moreover, group policies usually do not require medical examinations, often a requirement for individual policies. For higher coverage amounts, this potentially makes group life insurance more accessible and cost-effective for employees.

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    Arthur Dubois is a personal finance writer at Hardbacon. Since relocating to Canada, he has successfully built his credit score from scratch and begun investing in the stock market. In addition to his work at Hardbacon, Arthur has contributed to Metro newspaper and several other publications