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Insights & advice

What is employee life insurance?

Nov. 2022 – 15 min read

Key takeaways

  • With employee life insurance, an employer pays the premiums for a life insurance policy

  • Employee life insurance can be considered part of a group benefits plan

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What is employee life insurance?

With employee life insurance, an employer pays the premiums for a life insurance policy when the employee meets the eligibility criteria. Following a death, a lump sum is paid to the employee’s beneficiary. This money can used to help cover funeral costs, outstanding debts or loss of crucial income. 

Employee life insurance is optional for employers to provide to employees. However, it’s a common part of employee benefit packages and as with all employee benefits, can help you attract and retain good employees.

Types of employee life insurance businesses can offer

Most employers offer group term life insurance. You can customize your benefits plan and contain costs by choosing the amount of insurance coverage. 

As an employer, you have 3 ways to cover your employees:  

  • Base coverage

    Most group term life insurance policies provide a set amount of coverage for every employee (for example, $10,000), or are based on how much an employee earns (for example, 1, 2 or 3 times their annual salary). Employees’ coverage usually ends when their employment with a plan sponsor ends.

  • Voluntary or optional coverage

    Your employees can choose to purchase additional life insurance coverage, at a group rate that is generally more affordable than purchasing it individually. Employees opt to do so at their own cost for as long as they choose to pay for premiums or until they’re no longer an employee.

  • Portable Benefits

    Administered directly by Canada Life, this is life insurance that employees can take with them when they leave the employer or become unemployed, while still paying a more affordable group rate – and there are no administration requirements or extra fees for you. Employees can enrol through our online tool and pay via credit card or pre-authorized debit. Portable benefits  can’t be combined with plan sponsor elected optional products. 

    For example, after working for a company for several years, Jessie decides to start their own business. Not wanting to lose their employee life insurance with Canada Life, soon after leaving they apply for Portable Benefits to continue coverage simply by continuing to pay the premiums.

Taxation for employee life insurance

Group life insurance premiums paid by the employer on behalf of the employee are a taxable benefit to the employee.

Premiums paid by the employee (e.g., for additional or dependent coverage) aren’t a taxable benefit to the employee. 

Regardless of who pays the premium, the death benefit paid to the beneficiary is always tax-free. 

What’s next?

Now that you understand more about employee life insurance, you may want to contact your employer to determine what your options are for employee life insurance. You may also want to contact your advisor to:

  • Determine how your employee life insurance fits into your financial plan and whether it provides you with enough coverage

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The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of our knowledge as of the date of publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.