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Employee Benefit Coverages

Insurance coverages that can be used to provide employee benefits include group life insurance, group health insurance, disability insurance, and retirement income. Key employee insurance protects the company against financial loss caused by the death of a valuable employee or partner.

Group Life Insurance

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1. If you pay group insurance premiums and cover all employees up to $50,000 the cost to you is deductible for federal income tax purposes and yet the value of the benefit is not taxable income to your employees. _____ _____
2. Most insurers will provide group coverage at low rates even if there are 10 or fewer employees in your group. _____ _____
3. If the employees pay part of the cost of the group insurance state laws require that 75 percent of the employees must elect coverage for the plan to qualify as group insurance. _____ _____
4. Group plans permit an employee leaving the company to convert group insurance coverage to a private plan at the rate for his or her age without a medical examination within 30 days after leaving the job. _____ _____

Group Health Insurance

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1. Group health insurance costs much less and provides more generous benefits for the worker than individual contracts do. _____ _____
2. An employer pays the entire cost for group health insurance. Individual employees cannot be dropped from a group plan unless the entire group policy is canceled. _____ _____
3. Generous programs of employee benefits such as group health insurance tend to reduce labor turnover. _____ _____

Disability Insurance

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1. Workers' compensation insurance pays an employee only for time lost because of work injuries and work-related sickness -- not for time lost because of disabilities incurred off the job. But an employer can purchase, at a low premium, insurance to replace the lost income of workers who suffer short-term or long-term disability not related to work. _____ _____
2. You can get coverage that provides employees with an income for life in case of permanent disability resulting from work- related sickness or accident. _____ _____

Retirement Income

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1. If you are self-employed you can claim an income tax deduction for funds used for your and your employees' retirement through insurance or annuities approved for use under the Employees Retirement Income Security Act of 1974 (ERISA). _____ _____
2. Annuity contracts may provide for variable payments in the hope of giving the annuitants some protection against the effects of inflation. Whether fixed or variable the annuity can provide retirement income that is guaranteed for life. _____ _____

Key Employee Insurance

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1. One of the most serious setbacks that a small company can incur is the loss of a key employee. But your key employee can be insured with life insurance and disability insurance owned by and payable to your company. _____ _____
2. Proceeds of a key employee policy are not subject to income tax but premiums are not a deductible business expense. _____ _____
3. The cash value of any key employee insurance that accumulates as an asset of the business can be borrowed against and the interest and the dividends are not subject to income tax as long as the policy remains in force. _____ _____

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This article is reprinted by permission of the SBA and The Travelers, Hartford, Connecticut.
For more information on SBA programs go to www.sba.gov


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