What Employers Should Understand About Providing Life Insurance Benefits

Introduction

February marks Insure Your Love Month — a timely reminder that caring for others is often expressed through meaningful action. For small business owners, that sense of responsibility extends beyond family to the employees who keep the business moving forward. One thoughtful and impactful way to demonstrate that appreciation is by offering employer-sponsored life insurance.

While many small businesses assume life insurance benefits are too complex or too costly, the reality is quite different. Group-term life insurance is accessible, affordable, and sends a clear message: you value your employees and want to support their families’ well-being.

Why Offering Life Insurance Matters

Only 42% of employees at small businesses have access to employer-provided life insurance today. That means most workers in smaller organizations lack this important financial safeguard. By choosing to offer life insurance, your business immediately stands out as one that prioritizes employee care — a powerful advantage when it comes to attracting and retaining top talent.

Why Employees Appreciate This Benefit

According to a 2025 LIMRA Workplace Benefits Study, 55% of U.S. employees rely on life insurance provided through their employer. That figure rises to 59% among households with children under 18. For parents and caregivers, having access to this protection delivers peace of mind — the assurance that their loved ones would be financially protected in the face of the unexpected.

An Affordable, Low-Complexity Benefit

Group-term life insurance is one of the most budget-friendly employee benefits available. Monthly premiums usually fall between $0.05 and $0.60 per $1,000 of coverage per employee. In practice, that means offering $50,000 of coverage can cost as little as $2.50 to $30 per employee each month, depending on factors such as employee age, type of work performed, and the plan design you choose.

The enrollment process is simple and often requires no medical exam. Even very small teams — sometimes just two to 10 people — may qualify. Modern HR and payroll systems, including platforms like Gusto, Rippling, and ADP, also streamline premium deductions and benefit administration. Many insurance carriers maintain dedicated small-business departments, making setup, compliance, and ongoing maintenance even easier.

Key Tax and Compliance Considerations

Employer-provided life insurance falls under IRC Section 79 , which outlines how coverage should be taxed and reported.

• The first $50,000 of employer-paid coverage is generally tax-free for employees as long as the plan meets nondiscrimination criteria.
• Employers can usually deduct premium payments as a business expense.
• Any coverage exceeding $50,000 is considered taxable income to the employee and must be reflected on their W-2.

To maintain compliance, plans cannot favor key employees. A plan is considered nondiscriminatory if it meets at least one of the following standards:

• It covers at least 70% of the organization’s total employees,
• At least 85% of enrolled participants are not classified as key employees, or
• It benefits a group that the IRS recognizes as nondiscriminatory.

Keeping thorough records related to eligibility, participation levels, and plan structure helps ensure compliance with reporting rules and IRS guidelines.

A Benefit With Real Emotional Impact

Life insurance is more than a financial tool — it helps nurture trust and long-term engagement. More than nine in 10 employees associate their job satisfaction with the strength of their benefits package. When you introduce group-term life insurance, you signal that your business is stable, supportive, and committed to providing security for the people who work there.

Flexible Plans That Grow With Your Business

Starting small is perfectly acceptable. You can offer $25,000 or $50,000 in basic coverage and expand as your business grows. Many plans include accidental death and dismemberment (AD&D) protection or give employees the option to purchase additional voluntary life insurance for themselves or their family members.

Some plans offer bundled discounts when combined with disability or accident coverage, helping lower costs and simplify administration. Additionally, portability features in certain policies allow employees to take their coverage with them if they leave the company — a valuable perk that supports financial continuity.

How to Communicate the Benefit

Before launching the benefit, consider hosting a quick overview meeting or sharing a short FAQ that explains eligibility, how enrollment works, and how employees can select or update their beneficiaries. During each open enrollment cycle, remind employees to review their coverage levels and confirm that their designated beneficiaries are still accurate.

Final Thoughts

Insure Your Love Month offers a meaningful moment to invest in your team’s future. Group-term life insurance remains an accessible and high-impact benefit that supports both the financial security and emotional well-being of your employees. By implementing this coverage, you’re not just offering a perk — you’re reinforcing a workplace culture grounded in care and long-term commitment.

If you’d like to explore available options or review sample pricing, reach out to your insurance broker or benefits advisor. It may be one of the most straightforward and lasting investments you make in your team this year.