What is Group Life Insurance in Canada?
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Discover the methodologyGroup life insurance is an employee benefit offered by employers in Canada. Whether large or small, a company that has an established group life insurance policy provides a simple way for employees to get life insurance coverage at little to low cost. Company group life insurance policies may even be the only way for some individuals to get access to life insurance.
But what should employers consider before deciding on group life insurance? Who are the best life insurance providers in Canada? And, what limitations come with group life insurance?
This article dives into employers' most frequently asked group life insurance questions and gives an insight into the best options available in Canada.
Group life insurance key takeaways
- It is a low-cost, yet effective employee benefit
- Helps protect your employees and their families financial health
- Group life insurance premiums are considered a business expense
- Can provide life insurance to individuals who don’t otherwise qualify
What Is Group Life Insurance?
Group life insurance is an employee group benefit offered by small and large companies in Canada, alike. It provides employees of these companies with life insurance coverage for as long as they are employed at little to no cost to the employee themselves. Just like normal life insurance, if an employee passes away their nominated beneficiary will receive a tax-free life insurance payout.
Employer-provided group life insurance is often the only life insurance cover that many individuals in Canada will have. The ease of access to the life insurance policy and the fact that the employer has already done the heavy lifting when it comes to researching providers is incentive enough for employees to opt-in to coverage.
However, since group life insurance usually only offers basic coverage with a low death benefit, it might not be sufficient to cover an employee’s beneficiaries' actual financial needs. Therefore, group life insurance should always be considered a perk as opposed to sufficient standalone coverage.
Expert advice
Group life insurance does not always have to be company sponsored or provided. Group life insurance plans and policies can also be offered by member associations.
How does group life insurance work?
Group life insurance is provided by employers or associations to employees and their members as a benefit. Since the life insurance plan is set up to cover several individuals, the group life insurance premiums come at a significant discount when compared to individual life insurance policies.
Typically, group life insurance coverage will be a specified amount with coverage ranging from $25,000 up to the employers’ choosing. In some instances, employers may also choose to provide insurance coverage in relation to an employee's salary. For example, the group life insurance death benefit could be equal to or a multiple of an employee’s salary. In both instances, the group life insurance is usually guaranteed as part of an employment contract so the employee doesn’t necessarily need to actively opt in. The life insurance is simply just provided.
In the event of an employee’s death, the death benefit will be paid to the employee’s pre-determined beneficiary or to their estate in accordance with the law, where a beneficiary is not declared. Just like with individual life insurance, the insurance benefit is not taxable and does not need to be reported as income to the Canada Revenue Agency.
Group life insurance is intended to be a simple, low-cost employee benefit that will provide some support and security to an employee's family and financial future. Due to this, group life insurance is customized with lower coverage in order to provide an easy approval process with minimal health declarations, making it an easy benefit for employers to administer.
What are the benefits of group life insurance?
The benefit of group life insurance to employers is that the relatively low-cost investment into their employees’ financial stability can attract new talent while simultaneously showing appreciation to the current workforce. In addition, since the premiums paid on group life insurance can be written off as a business expense, the money spent on a life insurance policy may be cheaper than providing salary increases that would otherwise attract increased CPP and Workers’ Compensation.
Group life insurance policies in Canada are also easy to set up with minimal administrative needs. The low death benefit coupled with guaranteed coverage to all group employees removes the need for individuals to undertake a medical exam and ultimately makes qualifying for the policy hassle-free. Further advantages and disadvantages of group life insurance policies are:
Pros
- Low-cost employee benefit
- Flexible in terms of coverage options
- Easy to administer
- No medical exam is necessary
- Offers employees financial stability
- Can help attract new talent and retain staff
- Paid premiums can be listed as a business expense
Cons
- Employees are limited to the company’s insurance option
- Not always portable
- Relatively low coverage amounts
- Lack of individual control for employees
What are the types of group life insurance?
The two most common types of group life insurance are employee basic life and dependent basic life insurance.
- Employee basic life insurance provides the employee’s designated beneficiary with the death benefit in the event that they pass away.
- Dependent basic life insurance is coverage of the employee’s dependents and in the event of their death, the employee will receive a smaller death benefit.
Both employee basic and dependent basic life insurance is group term life insurance that frequently renews on an annual basis. Since group term life insurance in Canada is also among the cheapest life insurance options, it is the most common type of group life insurance offered by employers.
What is the best group life insurance?
The best group life insurance in Canada is offered by major life insurance providers such as Manulife, Sun Life and Empire Life. These providers have a wide range of group life insurance policies that cater to both bigger corporations as well as smaller companies. Not only are group life insurance policies affordable and flexible, but they can also come with additional add-ons including health cover and permanent disability.
The best group life insurance providers in Canada include
- Sun Life group insurance
- Empire life group insurance
- Canada life group insurance
- Manulife group life insurance
- Wawanesa life group insurance
Want to compare Canada's best group benefits plans now? You can.
Who is eligible for group life insurance?
The eligibility requirements of group life insurance vary between insurance providers, the policies that they offer and the employers themselves. For example, Manulife offers a group term life insurance policy for SMEs called Group Protect. This insurance policy is only available for individuals aged 18-64 and for corporate groups with 5 to 100 employees.
The eligibility requirements determined by the employer can relate to anything from length of employment to individual contract terms or enrollment after a specific qualifying event. Examples may include that employees are only eligible for group life insurance once they pass probation, being a full-time permanent employees or have a child as a dependent.
Good to know
Once an employee becomes eligible for the group term life insurance policy, they will be automatically enrolled in the life insurance policy as they would not need to complete a medical exam.
How much is group life insurance?
The cost of a group life insurance plan in Canada is not easy to calculate due to the variables that influence the premium. In all cases, an employer or HR administrator would have to contact an insurance provider in order to get an accurate quote.
The factors that affect the annual premium of group life insurance will be specific to the employer, the provider and the insurance policy. They may include:
- Employees’ information such as age, gender and marital status
- Salary
- Coverage amount
- Occupation
- Industry
- Claim experience
- Location of the company
- Location of the employee
Fortunately, insurance providers can provide an estimated premium when provided with a few different factors. You can shop Canada's best group benefits providers below.
What happens to group life insurance when an employee retires?
Whether the employee retires, is let go or quits, the group life insurance policy will cease to cover the individual either immediately on termination of a working contract or within a short period of time following their departure.
Depending on the employer and the group life insurance policy, it may be possible for a leaving employee to convert their group life insurance coverage into an individual life insurance policy without needing to undergo new medical underwriting.
Expert advice
Check your contract or speak with your insurance provider to confirm how it handles coverage for employees after they leave.
How to convert group life insurance to individual life insurance?
Converting a group life insurance policy to an individual life insurance policy means that you are simply taking over your employer-provided life insurance plan after your contract with your employer ends. While most insurers offer the right to convert group insurance plans into individual life insurance policies, it is important to know the conversion eligibility requirements as your financial reliance on the insurance could be affected by them.
Canadian group life insurance providers normally allow individuals to convert their group life insurance into individual life insurance policies with the following criteria:
- The employee is under the age of 65
- The application for conversion is submitted within 31 days of your employment termination
- The converted death benefit is <$200,000
- The application is submitted by a licensed advisor of the insurance company
While converting group life insurance to an individual policy normally doesn’t require a medical exam or health declaration, the premium rates will likely increase. The new premiums will be based on the prevailing rates of the insurance policy you choose, the death benefit amount that you are converting and your age.
Is group life insurance taxable in Canada?
Yes, group life insurance premiums are taxable when they are paid by the employer on behalf of the employee. This is because the benefit premium is applicable to an employee’s income which affects their overall tax liabilities which are then taxed at the applicable rate. Any premiums that are paid by the employee are not taxable benefits.
Just like the death benefit received from normal a individual life insurance policy, any payout received by a beneficiary from the passing of an employee is also tax-free.
Why employers should offer group life insurance?
To summarize, group life insurance is important because not only does it provide employees with financial stability and low-cost life insurance cover, but it also allows the company to maintain a competitive edge by attracting new talent and retaining expert staff. In addition, for employees who would otherwise struggle to obtain life insurance due to pre-existing medical conditions, it could be the only way for them to provide that cover for their loved ones.
