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Insights on Employee Basic Life Insurance









Basic life insurance offers affordable, guaranteed coverage up to set maximums. But benefits are reduced at certain ages. Supplemental policies can provide higher, portable protection.

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Employee Basic Life Insurance in Canada: A Comprehensive Guide

Having basic life insurance provided through your employer is a valuable benefit offered to millions of Canadian workers. This affordable, guaranteed coverage can provide important financial protection for your loved ones.

However, basic life insurance benefits are often limited in scope. Understanding exactly how these group policies work and whether supplemental coverage is recommended is key to ensuring your income replacement and final expense needs are covered.

This in-depth guide explains everything Canadian employees should know about basic life insurance offered through your employer.

What is Employee Basic Life Insurance?

Employee basic life insurance is a form of group term life insurance sponsored by employers. It provides employees with a set death benefit, typically at little or no direct cost to the individual worker.

Here’s an overview of how basic life insurance works:

- The employer purchases a group life insurance policy from a carrier like Sun Life, Manulife, or Canada Life. The contract outlines the benefit structure.

- Employees are automatically eligible to enroll in the basic life coverage up to a guaranteed ‘non-evidence maximum’ limit ranging from $100,000 to $500,000.

- No health questions or medical exams are required to qualify during initial enrollment thanks to this guaranteed issue.

- Premium costs are shared across the entire employee group, allowing for affordable rates. Often the employer covers the full cost.  

- If employees contribute to premiums, the payments are made conveniently via payroll deduction.

- The basic life insurance remains in effect while employed, though reductions may start at age 65.

Having basic life insurance makes getting at least some level of coverage quick, affordable, and hassle-free for Canadian workers. But the death benefits provided are often insufficient to fully replace income or cover final expenses for families.

Understanding the Pros and Cons

While guaranteed issue group life insurance offered through your workplace provides key advantages, the limitations of basic life insurance coverage must also be recognized.

Pros of Basic Life Insurance

- Guaranteed issue means no health questions or medical exams are required, making enrollment easy.
- Group policies spread risk across employees to reduce premium costs. The employer often covers the full cost.
- Coverage stays in effect while employed. You don’t have to re-apply each year.
- Some basic policies include early payout options if terminally ill. This can assist with end-of-life costs.

Cons of Basic Life Insurance  

- Benefit amounts tend to be low, usually 1x to 2x your annual salary, depending on employer. This provides limited protection.
- Conversion to individual policies when leaving your job can be costly. Portability is not guaranteed.
- Benefits are reduced starting at age 65 in most basic life insurance policies.  
- If the employer switches group life insurance carriers, coverage could be impacted.

While basic life insurance is a valuable benefit, it may only cover a fraction of the total income replacement and final expense needs for Canadian families. That’s why many employees supplement with private life insurance policies.

What Does Basic Life Insurance Cover?

The way basic life insurance benefits are calculated varies between group policies. But most fall into one of two main structures:

- Multiple of Annual Earnings – The most common approach bases the death benefit on the employee’s salary, such as providing 1x or 2x their annual earnings.

- Flat Benefit Amount – Some group policies pay a set payout amount for each employee, such as $50,000.

The maximum benefit available under a basic life policy is called the ‘non-evidence limit’, ranging from $100,000 to $500,000. During initial enrollment, employees are guaranteed approval for coverage up to this no-evidence maximum.

Here is an example of how it works:

- Company ABC offers employees 2x salary basic life coverage.
- The non-evidence limit is $250,000.
- Employee X earns $80,000 per year.
- They are automatically approved for $160,000 of basic life insurance.

While fast and convenient, the $160,000 payout may not sufficiently replace income for Employee X’s family for any meaningful duration, highlighting the potential gaps in basic life insurance.

Many Canadian employees opt to supplement with personal life insurance policies at higher benefit levels after considering their unique obligations and income replacement needs.

Who Gets Basic Life Insurance?

Employee basic life insurance is available to all eligible staff members of organizations that sponsor a group plan. Eligibility criteria typically includes:

- Being a full-time permanent employee (part-time or temporary staff may be excluded)
- Completing an initial waiting period, such as 3 months on the job
- Meeting any minimum age requirement, often age 18

The life insurance continues while employed, though reducing benefits at certain ages is common. Most group policies begin decreasing basic life benefits by 50% at age 65, with all coverage ending between retirement or age 70.

How Much Does Basic Life Insurance Cost?

One of the advantages of basic life insurance is very affordable premiums, often at no direct cost to the employee.

There are two main reasons group basic life rates are low:

1. Group buying power - Insurers can spread risk across a large pool of employee lives.

2. Employer contributions - Many employers cover some or all of the premium costs as an employee benefit.

If any portion of the premium is the responsibility of employees, it is deducted through payroll, allowing for convenient payments.

Monthly premiums deducted from paychecks are typically very reasonable, even for coverage amounts of $100,000 or greater. Deductibles often range from:

- $10 to $20 monthly - $100,000 to $250,000 in coverage
- $20 to $40 monthly - $250,000 to $500,000 in coverage

And employer contributions can bring these payroll deductions down significantly or even to zero.

The affordability and no-fuss enrollment process of basic life insurance makes it a valuable benefit for Canadian workers. However, the limitations on benefit amounts highlight the need to evaluate supplemental coverage options for sufficient protection.

Should You Buy Supplemental Life Insurance?  

While basic life insurance provides some level of guaranteed coverage, the benefit payouts are rarely sufficient on their own to cover a family’s complete income replacement needs.

Many Canadian employees opt to supplement their basic life benefits with private insurance policies offering higher coverage.

Purchasing supplemental life insurance through your employer provides several advantages:

- Group rates are typically lower than individual insurance.
- Premiums are conveniently deducted from paychecks.
- No medical exam is required for guaranteed issue amounts.
- Coverage is portable - you can take it with you if you leave the job.

Supplemental life insurance enables you to expand your total death benefit to a level more suited to replacing your income and meeting funeral costs.  

Combining basic and supplemental life insurance allows you to gain affordable, guaranteed coverage at modest levels, along with higher benefit amounts that better meet your family’s financial needs.

To determine how much total life insurance you require, use an online needs calculator or work with a licensed advisor. Getting sufficient coverage now protects your loved ones later. Don’t leave them vulnerable..

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