Financial professionals can offer their employees a variety of insurance plans. Some types of insurance, such as workers’ compensation insurance, are required by law, while others are optional. However, providing these options can save your business money in the long run. Businesses that offer insurance coverage as part of a comprehensive benefits package tend to have happier employees, which means you’re more likely to keep employees and avoid turnover.
It also means that your company will have protection in the event an employee is injured on the job and files a lawsuit. Depending on the size of your business, legal trouble may be devastating. If your employees sue for injuries sustained on the job, insurance will make sure you are covered. This could potentially save you an enormous amount of money in legal fees. Other types of insurance can help your company after losing a vital employee. Regardless, paying insurance premiums now can mean long-term protection.
In this article, we cover the following types of insurance that cover your employees:
- Workers’ Compensation Insurance
- Key Person Insurance
- Group Health Insurance
- Group Life Insurance
- Group Disability Insurance
Workers’ Compensation Insurance
Workers’ compensation insurance provides financial support for employees who are injured in the course of their job. Workers receive this benefit in return for agreeing not to sue your company even if it is at fault for their injuries. In fact, workers’ compensation insurance is specifically no-fault insurance. This means that all involved parties agree that no one is to be held legally at fault for the incident.
Workers’ compensation insurance covers a variety of expenses that result from an accident. It covers medical fees for the employee. It also pays at least part of their wages for the period that they cannot work because of their injuries. This percentage may vary. In many states, workers’ compensation insurance covers two-thirds of wages for that period. If a work-related injury results in an employee death, it also covers funeral costs. It may even cover some benefits for dependents of the deceased.
Consider this example: An employee slips on the front steps of your office. She wrenches her back and needs to go to the hospital. Workers’ compensation insurance covers her hospital stay, medication, and physical therapy. By accepting compensation from workers’ compensation insurance, the employee cannot sue your company for not ensuring the step was safe and dry.
Workers’ compensation insurance coverage varies from state to state. Depending on your state, there may be certain illnesses or injuries that are not covered. If one of your employees sustains an injury not covered by state law, they have the right to sue your company for medical expenses. However, these lawsuits will generally be covered by your workers’ compensation insurance plan as well. There are also some limited exclusions from coverage. These include incidents involving substance use or occurring en route to the workplace.
The requirements for workers’ compensation insurance vary by state, but in most states, it is legally required for most companies that hire employees. Even if it is not required by law in your state, it is a wise investment. A lawsuit resulting from a workplace injury can be devastating for a business.
Key Person Insurance
Key person insurance operates as a life insurance policy for key members of a business’ staff. This includes business owners, top-level employees, and managers. For a financial firm, it might include the partners in a firm or other high-level employees that have important client relationships or very specialized knowledge. Key person insurance serves as a safety net for businesses that lose a critical employee. It helps a company adjust during the period following their death.
The costs following the death of a central employee can be significant for a business. They might include the cost of replacing them or adjusting for a loss of revenue. For example, if a partner at your business dies, you risk losing their clients. This would result in a significant financial loss for your business. Your company needs time and money to restructure and pass clients to other partners. In the meantime, you might also lose money in the form of time. The time it takes to reorganize and restructure means you lose valuable productivity.
Generally, key person insurance is a life insurance policy issued on the life of a partner or key employee of a financial firm but owned by the financial services firm. The firm is the beneficiary of the policy, rather than the partner or key employee, and the firm also pays the premiums for the coverage.
Key person insurance also provides funds for shareholder buyouts from the deceased person’s estate, as well as loans the business may have. If the late employee was an owner and the company fails after their death, it also provides funds to liquidate the business, which can be easier than a disorderly bankruptcy.
Key person insurance does not provide for itemized costs after the death of a key employee. Rather, like any life insurance, it pays an agreed-upon sum stated in a policy. It is not intended to help the dependents of the deceased, like a personal life insurance policy. Rather, it helps companies restructure after the loss of an important figure in their organization.
Group Health Insurance
Group health insurance is one of the most popular employee benefits that financial firms can provide. Offering an attractive health insurance policy is a key benefit that will help your financial firm attract and retain talent. Additionally, for firms with 50 or more full-time employees, offering group health insurance may be required under the Affordable Care Act.
There are a variety of different health insurance plans with different pros and cons. With group health insurance, your financial firm pays premiums to a health insurance company. These premiums are sourced both from company funds and withholdings from employee paychecks. In return for paying these premiums, the insurance company will help pay for medical costs incurred by your employees.
For companies, providing group health insurance can provide an important tax benefit. The premiums you and your employees pay for health insurance premiums are tax deductible. This also reduces your employees’ taxable income, which lowers your business payroll taxes as well.
The five main types of group health insurance are:
- Health Maintenance Organization
- High-Deductible Health Plan
- Preferred Provider Organization
- Point of Service
- Exclusive Provider Organizations
A health maintenance organization, or HMO, offers a limited network of medical providers. Members must go to a doctor that is in-network. They also need a referral from a general practitioner to access specialty care. This plan usually involves low premiums and low or nonexistent copays for employees.
A high-deductible health plan, or HDHP, offers access to a larger network of doctors. It does not require members to have referrals for specialty care. However, it also requires high deductibles, which means members pay significant out-of-pocket costs. Most of these plans offer opportunities for tax-free savings. This means that members are not taxed for the money they use to pay out-of-pocket costs.
A preferred provider organization, or PPO, offers members the largest network of coverage. It does not require specialist referrals. There are some out-of-pocket fees, including deductibles and copays. These are not as high as those involved with an HDHP, however. PPOs have the most expansive coverage of any insurance plan. However, they also charge the highest premiums.
A point of service, or POS plan, gives members the choice to go to doctors that are in-network or out-of-network. There are higher costs associated with out-of-network providers, but they are partially covered. This plan does not provide the same expanse of care as a PPO plan, but the premium costs are also lower. Members can expect to pay some fees out-of-pocket, such as deductibles or copays.
Exclusive provider organizations, or EPOs, offer large networks without requiring specialist referrals. But they usually do not include coverage for any out-of-network service except for emergencies. Premium costs fall between those of HMOs and PPOs.
Group Life Insurance
Group life insurance helps to provide security for your employees’ families or loved ones by making a payment if an employee dies. Companies pay premiums to an insurance provider on behalf of their employees. If an employee dies while employed by your financial firm, the policy provides financial benefits for their beneficiaries whether the death occurred on the job or not. Beneficiaries are stipulated by employees when they sign up for group life insurance. Employees can choose who will receive their money in the event of their death. Group life insurance may be part of a larger package that includes other employee benefits.
Group life insurance is term insurance, which means it renews on a yearly basis. It is also guaranteed issue. This means that employees qualify without supplying any personal medical information. There are two kinds of group life insurance plans:
- Flat-Dollar Benefit
- Multiple of Salary Benefit
Flat-dollar benefit plans offer a predetermined flat amount for each employee. This might be $10,000 or $25,000. It depends completely on the policy. These plans are often appropriate for part-time employees.
Multiple of salary benefit plans are appropriate for salaried employees. These plans provide a multiple of the annual salary of the deceased. This is usually one to two times the annual salary. Most financial professionals have salaried employees. This makes this type of life insurance an appropriate choice.
Group Disability Insurance
Group disability insurance provides financial benefits for your employees if they can no longer carry out their duties due to a disability that occurs while the employee is not working. (On-the-job injuries would be covered by workers’ compensation insurance.) The goal of disability insurance is to ensure that disabled employees can support themselves even if they are no longer able to work.
Group disability insurance is dependent on employment status. It is tied to a person’s place of employment. This means that it will no longer provide benefits if they become disabled after they leave their job. Group disability insurance plans are also not reliant on individual health status. Individual plans may disqualify members from coverage if they have certain preexisting conditions. Group plans have no such exclusions. Costs may go up and down on an annual basis.
Group disability insurance plans can vary from state to state or even job to job. Even the definition of disability might change depending on your plan. For the most part, disability is defined as being unable to carry out your job requirements.
Employee disability coverage is tied to their base salary or W2 income. This does not include any salary “extras,” such as retirement funds or yearly bonuses. Policies may be either short- or long-term. This can affect how long they take to start, how long they continue, and how much employees receive. Some policies pay 100 percent of an employee’s salary, but this is unusual.
Most long-term group plans pay 50 to 60 percent of an employee’s salary. But even this is subject to a monthly limit. Disability insurance is not intended to completely replace a salary. Rather, the goal is to make it possible for a disabled employee to get by when they can no longer work. These group insurance plans may also coordinate their benefits with social security disability insurance. This means that employees may receive less money from their employer-provided plan with social security providing the remainder of the funds.
For financial professionals, it may be difficult to imagine how disability insurance functions. After all, working in an office is not a physically demanding job. One example involves an employee whose job depends on typing large amounts of data. Due to a car accident while driving to buy groceries, she injures her hands. Due to her disability, she is no longer able to keep up with the demands of her position. Disability insurance can support her even though she cannot work.
Financial professionals have many different considerations for employee insurance. Not every kind of insurance is mandated by law. However, most employees expect financial firms to provide a comprehensive benefits package. They want to ensure they can work while providing for standard medical care. They also want to know their dependents will be safe if something happens. For these reasons, it is wise to consider investing in employee insurance packages. This will help with staff retention and keep your company safe from any potential lawsuits in the event of a workplace injury.