What Employers Should Know About Offering Life Insurance

February marks Insure Your Love Month—a reminder that showing you care often means taking meaningful action. For small business owners, that care extends beyond your personal circle to the employees who help your company grow. One powerful way to demonstrate that support is by providing employer-sponsored life insurance.

Many small business owners assume life insurance benefits are too expensive or complicated to administer, but that’s not the case. Group-term life insurance is typically affordable, simple to maintain, and sends a strong message that you value the well‑being of your team and their families.

Why This Benefit Matters

Only 42% of employees at small businesses currently receive employer-provided life insurance. That means the majority of workers in smaller organizations are going without this important protection. Offering coverage not only fills a critical gap but also positions your business as a thoughtful and competitive employer—something that can make a real difference when attracting and retaining talent.

Why Employees Appreciate This Coverage

According to a 2025 LIMRA Workplace Benefits Study, 55% of U.S. workers rely on life insurance offered through their employer. That figure climbs to 59% for employees raising children under 18. For parents and caregivers, employer-sponsored life insurance offers reassurance that their families will have financial support if the unexpected occurs. That sense of security is one of the reasons employees often view life insurance as a core benefit, not an optional one.

Affordable and Straightforward for Employers

Group-term life insurance is one of the most cost-friendly benefits you can provide. Premiums typically run between $0.05 and $0.60 per $1,000 of coverage per employee per month. For example, $50,000 of coverage may cost anywhere from $2.50 to $30 per month per employee, depending on variables such as age, occupation, and overall plan structure.

Setting up coverage is generally simple. Most plans do not require medical exams, and even small businesses—sometimes with as few as two to 10 employees—can qualify. Modern HR and payroll systems like Gusto, Rippling, and ADP make premium deductions and benefits management easy to handle. Many insurers also maintain small-business support teams dedicated to helping employers with onboarding, compliance questions, and ongoing administration.

Understanding Tax Rules and Compliance

Employer-paid life insurance is governed by IRC Section 79, which outlines how the benefit is taxed and reported.

The key points include:

• The first $50,000 of employer-provided coverage is usually tax-free for employees if the plan does not favor key employees.
• Premiums paid by employers can generally be deducted as a business expense.
• Any amount of coverage above $50,000 is considered taxable income and must be included on employee W-2 forms.

To maintain the tax advantages, the plan must pass nondiscrimination requirements. A plan qualifies as nondiscriminatory if it meets at least one of the following standards:

• It covers at least 70% of all employees,
• At least 85% of covered employees are not considered key employees, or
• It benefits a group of employees the IRS considers nondiscriminatory.

Keeping detailed records of eligibility, plan features, and participation helps ensure your business meets federal compliance guidelines.

A Practical Way to Support Your Team

Life insurance offers employees peace of mind and contributes to a sense of long-term security. Broadly speaking, more than nine out of 10 workers say that their satisfaction at work is tied to the benefits their employer provides. Offering even basic life insurance communicates stability, gratitude, and long-term investment in your team’s well-being.

Customized Options That Grow With Your Business

You don’t have to begin with an extensive plan. Many employers start by offering $25,000 or $50,000 in coverage and build from there. It’s also common for group-term plans to include accidental death and dismemberment (AD&D) insurance or give employees the option to purchase additional voluntary coverage for themselves or their dependents.

Combining life insurance with other benefits—such as disability or accident insurance—may result in bundled discounts and simplified management. Some plans also allow employees to keep their coverage if they leave the company, giving them additional flexibility and value.

Communicating the Benefit Clearly

Before launching the benefit, host a short information session or share a clear FAQ document outlining eligibility rules, how employees enroll, and how they can update or choose beneficiaries. During open enrollment periods, gently remind your team to review their coverage levels and beneficiary designations to ensure everything remains accurate.

Final Thoughts

Insure Your Love Month offers a meaningful opportunity to take a simple, impactful step for your employees. Group-term life insurance is affordable, easy to administer, and deeply valuable—emotionally and financially. By offering this benefit, you show your team that your commitment to them goes far beyond the workplace.

If you’re considering adding coverage or want examples of potential pricing, your benefits advisor or insurance broker can help you explore options. This could be one of the most thoughtful and lasting investments you make in your team this year.