Wednesday, 30 December 2020

Business.com

Business.com

Business Insurance 101 for 2021: Here's What You Need to Know

Posted: 30 Dec 2020 12:32 PM PST

The COVID-19 pandemic has had a massive impact on entrepreneurs worldwide, forcing many to rethink how best to approach their business strategies going into the new year. It has also had an unexpected silver lining: a huge boost in new business formations. 

According to the U.S. Census Bureau, applications for employer identification numbers to start a new business surpassed 3.2 million in 2020 – a marked increase of 19% over 2019. It seems that, despite the challenges of running a business during a global pandemic, the "class of 2020" is actually more energized and willing to start businesses, not less. 

Accordingly, demand for business insurance is also at an all-time high: Searches for the phrase "business insurance" have increased by more than 50% in 2020 from 2019, per Google Trends. In many cases, that demand comes from new buyers. In a JustBusiness survey of over 400 entrepreneurs launching new businesses in 2020, about 51% of respondents were first-time entrepreneurs, making decisions about business insurance for the very first time. 

To begin with, how do you know if you need insurance? The answer depends on a lot of factors. First, let's discuss the various types.

What is business insurance?

Determining the right type of business insurance is important not just for protecting your own assets, but for securing clients as well. Many jobs require a certificate of insurance, proof that you are covered in the event that something goes wrong on the job site. If your company installs products in clients' homes, for example, you will likely have to show a certificate of insurance before you can perform a job. It gives your client peace of mind to know that you're covered should something go wrong – from an injury on the job to damage done to the client's property.

If you think your line of work will often require proof of insurance to protect yourself and your clients, the question becomes, what type of insurance would be best for you? What do the different types of insurance cover, and how do you know which is right for your business?

There are six common types of business insurance, and the one you should get depends on the function of your business and risks you may be taking that need financial coverage. General liability insurance, or commercial general liability, is the kind of insurance every business needs, as it protects against bodily injury, property damage, personal injury, advertising injury and the like. These are all things that a business has to keep in mind, regardless of its function. 

 

Editor's note: Looking for business liability insurance? For help finding the right solution for your business, fill out the below questionnaire to have our vendor partners contact you with free information.

 

 

Professional liability, also called errors and omissions (E&O), protects the covered party against claims resulting from mistakes in the work. Accidents happen, even to the most careful and professional among us, so professional liability insurance covers claims of negligence arising from advice, legal defense fees, and court dates, all of which can severely hurt your business if you don't have the means to handle them.

Business equipment protection, sometimes known as inland marine insurance, covers everything you use on the job. Unlike general liability insurance, which covers your clients' property in the event of a mishap, business equipment protection covers your own property that you use in the workplace. If you're a professional photographer, for example, you may want to purchase this insurance to cover any expensive camera equipment in case of an accident. 

While these are some of the more general types of coverages your business might need, there are plenty of others that you might find yourself needing, such as commercial property, commercial auto, and workers' compensation insurance. The decision to purchase business insurance is based on both the fact that you simply can't take on work without it and that you may not be able to cover the financial strain of defense and damages should an accident happen.

Tips for business insurance buyers 

Once you've decided what you need, how do you determine how much you need? Over a 10-year period, 40% of small businesses will file a claim with their insurance company at some point, so it's fairly likely that you will need it sooner or later. But how do you hit that sweet spot of knowing how much protection you need and how much you can afford to pay in premiums?

Uncertainty is at an all-time high, so one important thing to keep in mind when determining how much insurance you might need is to assess your next few months. Reassess on a monthly basis rather than annually, as it's the best way to ensure that your business is as covered as possible without overpaying or putting yourself at risk. If you stay on top of how much you're paying monthly and whether you really need that much, you can make sure you're never buying more than what you need. You can always scale up if you need more.

When seeking out an insurer, beyond making sure you're not paying too much, you should shop around for a company you can trust. Insurance is not something that goes "on sale," so you need to look deeper into the value proposition of each provider. The best way to determine whether an insurance company is right for you is to look at its customer reviews and Net Promoter Score for context.

Whichever insurer you go with, demand efficiency. Look for speed and technology, especially in customer service. The way that businesses function is changing rapidly, and the pandemic has only accelerated that change. Yet most insurance companies still require you to pick up the phone and wait on hold every time you need to make a change. That's not in line with the needs of a modern business.

Even if you think you don't need insurance, you might want to consider flexible plans that would cover you in case of emergency. These are cancelable or pausable plans that let you start with short amounts of time but scale up as the year goes on and business picks up. It's a great way to help you determine what you need when starting out without pledging to a less flexible plan that doesn't cover everything or charges you too much. 

Ultimately, only you know the kind of insurance that works best for your business, how much you should spend on it, which insurer is right for you, and whether a flexible plan would be the best fit. New businesses are changing the business landscape in a way that will continue even after the pandemic ends, so as a new entrepreneur, you must get coverage from an insurance provider that is flexible to your needs as well.

Should You Be Using AI?

Posted: 30 Dec 2020 11:00 AM PST

A lot of people would answer the title question with a resounding yes! The reasoning behind it appears sturdy: Artificial Intelligence (AI) can automate repetitive tasks, improve workflows, aid with customer support, get business insights and help recruit talent. 

Yet, things aren't so simple. Whether you should implement AI or not will depend on many things: your industry, your vision, your ultimate business goals. After thoughtful consideration of these and other factors, you might find that you don't need AI at all (or that you could integrate it into a specific part of your workflow). Naturally, you might feel a little overwhelmed when starting to analyze AI for your business, as there's plenty of things to take into account.

So, where should you start? Here I'm proposing a road map that can lead you to a decision regarding AI. It can help you decide if you actually will benefit from this tech before you hire a nearshore development services company to create your own AI-based platform. 

Understanding AI's strengths 

Knowing how AI works and how you can use it is essential, but not enough to start identifying whether it's a good match for you or not. You also need to understand its strengths so you can comprehend the kind of tasks that this technology can tackle. Thus, it's crucial for you to know that today's AI makes the most impact in situations where you need human logic and judgment, but using people for them isn't feasible or scalable, or it's limited by human skill, accuracy, or speed.

You should also know that modern AI algorithms are best when doing the following:

  • Recognizing patterns

  • Processing language

  • Conducting predictive analysis

  • Working in hazardous environments

  • Sifting through large amounts of content

  • Finding the shortest path to a solution among multiple possibilities

  • Working nonstop in low-level tasks for 24-hour cycles

As broad as those might seem, they already provide you with a framework that allows you to imagine the possibilities of AI for your business. Once you complement it with the knowledge you gain by following the next suggestion, you'll have a proper understanding of what AI can mean for your company. 

Learn about AI uses in your industry

Considering AI uses in your sector can help you identify the real opportunities that technology can bring to your business. If all of your competitors are using AI to serve clients, hyperpersonalize content or analyze the market, then AI is the right fit for you (and that you need to develop an AI strategy as soon as possible to avoid falling further behind).

There are industries where AI is very common, including manufacturing, healthcare, fintech, retail and marketing. If your company belongs to one of those sectors, consider investing in AI. But if you are part of other industries, you should first see how impactful AI can truly be. That doesn't mean you can lay back and relax knowing that your competitors aren't using AI – it means that you'll have to evaluate if there's something AI can bring you that no other company in your sector has seen yet. 

Contemplate AI's integration with your overall strategy

On paper, implementing AI to your workflow seems amazing: It can revolutionize your pipeline, bring your efficiency to new heights and help you scale like never before. However, you shouldn't buy into the hype without a proper assessment of your overall strategy first. AI can theoretically give you a huge competitive advantage, but only if it makes sense in your current strategy.

What does that mean? That you should check if integrating AI aligns with your broader objectives. For example, AI might make sense if you're revamping your entire marketing strategy. But if you're developing a complex new product, implementing AI can get in the way, as the process of integrating it may take key resources away from the product development.

AI can help you with product development, but if you launch yourself to do both the development and the AI implementation at the same time, chances are you'll end up with a haphazard effort at both. Sure, a lot of people are recommending that businesses implement AI, and while there is some sense to it, that doesn't mean you should disrupt your current strategy because of it. If AI doesn't align with your current objectives, then come up with a plan to complete your current roadmap and circle back to AI implementation later on. 

Think about budget

For a long time, businesses didn't want to invest in AI mainly because it was a costly move that didn't have an assured ROI. As time went by, AI became more accessible and more affordable (especially thanks to the proliferation of AIaaS services). However, AI is not a cheap asset that anyone can afford, though. Implementing AI requires an important investment that you have to consider before actually committing to it. 

If your budget allows your business to allocate resources for AI development, then things get easier, as you'll only need to think about which road is best for you: either an off-the-shelf AI-driven solution or a custom AI software solution developed in conjunction with nearshore software outsourcing engineers. If your budget is tight, the answer is even simpler: You aren't ready for AI, and you need to start planning how you can make room to accommodate future AI investments. 

AI as a partnership

The day where you'll have to invest in AI will come sooner rather than later, so you may want to get acquainted with the idea of AI implementation and what it means for you. That prediction doesn't mean you have to commit to that implementation today, though. You aren't obligated to integrate AI into your workflow, regardless of what you might have read or heard. Sure, there are plenty of advantages to be had, but they mostly depend on your company's context and specifics.

We're still far from the AI that's able to autonomously work on everything we can think of. Instead, AI's capabilities are narrow, which turns the technology into a powerful tool that can elevate your human team's abilities. In that light, AI is great to make predictions to inform decisions, solve problems and achieve business goals.

That means that deciding whether you need AI or not will have you looking at the problems you need to solve, the challenges that lie ahead of you, and the overall strategy you designed for all of it.

Once you have a clearer picture of your current standing, you can arm yourself with a more in-depth knowledge of AI's possibilities and define if a sophisticated AI-driven solution is what you need or if there are other simpler solutions that you can start applying right now.

18 Factors to Consider When Deciding Whether to Get Business Insurance

Posted: 30 Dec 2020 10:00 AM PST

For many entrepreneurs, buying insurance for their business may feel more like gambling. For the price of a monthly premium, they can help protect their business from liability in the case of a lawsuit or cover the cost of property damage in the event of a natural disaster. Unless those events happen, though, it can seem like wasted money. 

As the head of your business, it's your job to make tough decisions about where, when and how to spend your company's limited resources every day. Although it's easy to push insurance farther down on your list of priorities, out of sight does not necessarily mean out of mind when it comes to protecting your business.

While regularly shelling out funds for something you may never see a concrete return on may feel foolish or even painful, being prepared for anything may be worth the cost. To help you decide what's right for you and your business, 18 associates of YEC discuss the most crucial factors business owners should consider when deciding whether or not to get business insurance.

1. Your levels of liability

"This is a question of considering your liability. Are there chances people can get injured where you work? What about your price point? Is it high enough to go beyond small claims court? Worst-case scenarios don't always happen, but when they do, you'll be glad to have decent coverage." – Richard Fong, Ready Green

2. A possible loss of focus later

"The key consideration for me is whether business insurance can prevent a big loss of focus later. As the leader of a fast-growing company, you need to be able to continue focusing on that growth and not get distracted by the million things that are always coming your way. A legal issue will often take up the CEO's time. If this can be prevented for a reasonable cost, you know you'll be able to keep sprinting forward, uninterrupted." – Cody Candee, Bounce

3. Contracts with clients

"Do you have contracts with clients? If you do, then you should consider getting business insurance. Although you may both dive in with the best of intentions, sometimes lawsuits are inevitable, and it is good to have that layer of protection, no matter how ironclad you think your contracts are." – Zach Binder, Bell + Ivy

4. Your location

"Your location plays a crucial role in your business insurance. Take factors such as weather into consideration when deciding on your insurance plan, even if your business is digital. If you face server outages or data loss, you're going to want to have an insurance team to help you recover from some of the losses." – John Turner, SeedProd LLC

5. How much is at stake?

"Can you afford the downside if you go uninsured? It doesn't make sense to buy insurance for something you can afford to replace, but if there are millions of dollars at stake, then you'll want to buy insurance. If you are just starting out, you may want to preserve capital, but if you are at risk of losing your business due to a liability issue, then you should consider getting business insurance." – Matt Wilson, Under30Experiences

6. Size of coverage

"Always consider the size of coverage. At the end of the day, you need to think about the real expense of something bad happening, and there's a lot that can happen. Start from the main cost, and you'll be able to figure out the rest." – Nicole Munoz, Nicole Munoz Consulting Inc.

7. Your risk map

"Making a risk map is the best way to know what events can happen in the company that would affect its continuity. This will help define the importance of commercial insurance and which policy is the most convenient. Insurance is an elemental aspect because, in a business, the owner places great investments of time, money and expectations; therefore, protecting them becomes indispensable." – Kevin Leyes, Leyes Media

8. Every area of potential liability

"You need to consider every possible area in which you could be liable. This is something you should thoroughly research and get expert help with if you need it. There may be scenarios of which you're not even aware. Insurance seems like an unnecessary expense until the moment you find out that you really need it." – Kalin Kassabov, ProTexting

9. Your business legitimacy

"Business insurance is a must have in order to instill confidence in the individuals and organizations you work with. The legitimacy that comes with this insurance is important to maintaining these relationships, but it can be difficult to justify the cost if you have thin margins or lean sales months. I recommend taking advantage of SBA loans if you need to; that's what they're for!" – Bryce Welker, Beat The CPA

10. The numbers

"This might be an unpleasant answer, but it's simple math. It's a matter of crunching the numbers. Simple as that. Calculate the risks, low and highball them, sum up costs of premiums versus coverage, and if your percentage breaks even, get insurance. Don't forget to look at beneficial factors such as deductible taxes or package deals for other types of insurance you might need." – Joey Bertschler, Content Marketer

11. Your stability

"Consider stability. Insurance is best for those who have stable small businesses. If you're still unsure about everything, with tons of debt here and there, insurance is the least of your needs. Invest more in marketing, a good team, and awesome products and service. Once you're stable enough, get that insurance." – Daisy Jing, Banish

12. Your budget

"You have to take your budget into consideration when deciding on business insurance. There's no doubt that insurance is necessary in some areas, but you need to weigh your options. You don't want to get involved in a plan with extremely high costs every month and insane deductibles. Go with a reasonable insurance company that offers individual plans that meet your needs." – John Brackett, Smash Balloon LLC

13. Whether or not you have assets

"If you have assets, you need business insurance. If you don't, then it might not be necessary. For example, someone running a successful blog from their home with no employees may potentially not need business insurance. But if you have any assets at all, you'd be hard-pressed to make the argument that it isn't needed." – Andrew Schrage, Money Crashers Personal Finance

14. Claim settlement rates

"One of the important aspects to consider when deciding to get business insurance is the claim settlement rate that the insuring company has. Lower settlement rates should be a warning signal that you could be missing important points in the policy. Look for another one or try to figure out the details of the policy so that you're sure it fits you." – Syed Balkhi, WPBeginner

15. Potential damages to your clients

"Ask yourself, does your business have the capacity to cost your clients significant business or damages, and can they prove it? If so, there's no doubt that you need, at least, an ironclad liability clause in your contracts. However, to cover yourself, you should take out a good insurance policy. This way, you're protected in case a client or customer takes legal action." – Tyler Gallagher, Regal Assets

16. What the policy covers

"When choosing business insurance, it's important to figure out exactly what it covers and under what circumstances. Does the policy cover your employees? Does it extend to contractors and temporary staff? It's crucial to understand exactly what it covers so that you know you have nothing to worry about, no matter who you hire for projects." – Stephanie Wells, Formidable Forms

17. Working with a trusted broker

"The key is to work with an insurance broker who will take the time to get to know your business and make sure you will be adequately protected, but who will also not overinsure your business. You should ask questions about what you are most worried about. For example, would this policy cover you if X were to happen? If not, what type of policy would cover such an incident, and what would the cost be?" – Doug Bend, Bend Law Group PC

18. Where you see your company heading

"Keep the future in mind. Don't decide if you should have insurance based on where your business stands today. Make the decision rooted in where you see the company heading. One way to keep your insurance costs down is to find a plan and stick with it. If you have to expand your coverage based on your business's growth, you'll be paying more in the long run." – Matthew Podolsky, Florida Law Advisers PA

New Round of Paycheck Protection Program Loans Coming: What You Need to Know

Posted: 30 Dec 2020 05:23 AM PST

Small businesses will again have the opportunity to receive forgivable loans under the Paycheck Protection Program, which has received $284 billion in additional funding as part of the $900 billion COVID-19 relief and economic stimulus package. The new PPP loan program comes with several new rules and hopes of a streamlined application and forgiveness process. Whether this will be your first or second time applying for a PPP loan, here's what you need to know about what's changed since the program's inception last March with the passage of the Coronavirus Aid, Relief and Economic Security (CARES) Act.

Editor's note: Need a small business loan? Fill out the below questionnaire to have our vendor partners contact you with free information.

 

What is the Paycheck Protection Program?

The Paycheck Protection Program, or PPP, was established on March 27 when President Donald Trump signed the CARES Act into law. The PPP, which is administered by the U.S. Small Business Administration (SBA), extended forgivable loans to businesses for the purposes of paying wages, salaries, rent, mortgages and utilities. Eligible businesses were entitled to up to 2.5 times their monthly payroll expenses, with loans capped at $10 million each.

Demand for the loans was so high that the program exhausted its $349 billion funding in just 13 days, but Congress soon replenished it with additional funding. The program was also plagued by high-profile incidents such as large corporations receiving loans while small businesses waited without word on their application status. One of the most prominent incidents involved burger giant Shake Shack returning a $10 million loan; although Shake Shack has more than 6,000 employees nationally, no single location has more than 500 employees, so the company was able to secure funding through the PPP.

New round of PPP could address early missteps

Congress has imposed new restrictions on applicants to rectify the previous issues, including these criteria:

  • Borrowers must have 300 or fewer employees.
  • Borrowers must demonstrate a 25% reduction in quarterly revenue year over year.
  • The maximum loan amount is $2 million.

"These changes prohibit publicly traded companies from getting PPP loans," said Chris Hurn, founder and CEO of SBA lender and PPP participant Fountainhead. "It's Congress' attempt to shrink the universe of prospective second-draw PPP borrowers further … They are trying to help small businesses that really are small businesses, because they are the ones who were hurt the most."

Improved application process

According to Greg Ott, CEO of Nav, a company that helps connect small businesses with lenders, the application process is expected to operate more smoothly this time around, and the SBA's improvements to the back-end infrastructure should prevent high traffic from crashing the system.

"SBA uses a back end called E-Tran, which is built for doing about 5,000 loans per month," Ott said. "[In the first round], they were trying to do 5 million in a month. We anticipate those issues have been mostly resolved; they've built more technical scalability, which enables the lenders themselves to create a much more seamless process."

The application process could be extremely simple for businesses that previously applied for a PPP loan, Ott added. Businesses applying for the first time will need supporting documentation, but this process should also be expedited from earlier this year.

"If you didn't get a loan the first time, you will still have to produce some documentation to verify the drop in revenues and verify your payroll expenses," Ott said. "Either way, more of this will be done online and digitally versus the first wave."

More flexible approved uses for funds

In addition to narrowing the eligibility requirements, Congress expanded the purposes for which funds can be used, Ott said. Previously, forgivable expenses only included rent or mortgage, wages and salaries, and utilities. Covered uses for PPP funds include the purchase of personal protective equipment (PPE) or installation of dividers and barriers to improve customer and employee safety as the COVID-19 pandemic continues.

"There is more flexibility in how you can use the loan to really just keep your business alive," Ott said. "The emphasis is still on payroll, but there is more flexibility on it."

Streamlined forgiveness process

The new round of PPP is expected to streamline the loan forgiveness certification process for loans of $150,000 or less. This forgiveness application is expected to be a single page, although the SBA has yet to release any specific documentation.

"They're definitely working hard to further streamline forgiveness, especially for smaller-dollar loans," Ott said. "For loans of $150,000 and less, there will essentially be a one-page application process."

Tax deduction for forgiven PPP loans

Congress has instructed the IRS to allow businesses to deduct forgiven loans from their tax bill. Previously, the IRS maintained that forgiveness precluded businesses from taking the loan amount as a tax deduction, complicating accounting and increasing the tax burden on businesses that received a PPP loan.

"This makes it a lot easier to talk with your CPA, and there is no weird math you have to do on your tax return," said Healy Jones, vice president of financial planning and analysis at Kruze Consulting.

Small business takes priority in new round of PPP funding

There is a sense of optimism that these changes will not only direct more funds toward truly small businesses and allow them to use the money for a wider range of purposes, but also result in an easier application process.

The application period for the new round of PPP loans is not yet open. The SBA has 10 days from Dec. 27 to produce regulatory guidance on the application process, and lenders will then have to prepare their own processes before borrowers can be approved and funds can be distributed.

"The funds actually won't start processing from any lender just yet," Ott said. "The SBA has to release further guidelines. They have 10 days to do that. Then lenders have to first decide if they're going to participate."

After that, borrowers will be able to submit applications through participating lenders.

What should small businesses do in preparation for PPP applications?

If you plan to apply for a PPP loan in the new round of funding, there are a few things you should consider. While the application period is not yet open, you can take several important steps in the meantime.

1. Suspend the ongoing forgiveness certification process.

If you haven't already been approved for PPP loan forgiveness, suspend your forgiveness certification process immediately. Now that more approved uses of PPP funds have been added and the forgiveness process for smaller-dollar loans has been streamlined, it could behoove your business to recertify under the new rules.

"More sophisticated borrowers have held back forgiveness submissions to lenders because of anticipation it will be much more streamlined," Hurn said.

Pausing forgiveness certification also allows employers to examine the employee retention credit, which was previously unavailable to PPP borrowers.

2. Explore the employee retention credit.

If your business has fewer than 100 employees and experienced economic harm in the form of a government-mandated shutdown or a 20% year-over-year reduction in gross receipts in a single quarter, you are eligible for both the PPP loan and employee retention credit. The employee retention credit is $7,000 per employee, per quarter and reduces the payroll tax burden on a business.

"The employee retention credit is now available to folks who have also applied for a PPP loan," Jones said. "Basically, it lets you take a meaningful percentage of an employee's wages and reduce your payroll tax burden. Nobody was doing this before, because you could pick either PPP or employee retention credit. This would cut your spend or burn rate super quickly. You should definitely talk to your CPA about this."

3. Prepare any documentation needed to apply.

Businesses applying for the PPP loan need to verify their profit and loss statements and provide supporting documentation when applying for a loan. If you were previously approved for a PPP loan, it is likely the information that you previously submitted remains valid. If you have not applied for a PPP loan before, you can expedite the application process by having these documents in order ahead of time.

"The biggest thing a business owner can do is to try and determine if they have at least one quarter in 2020 where they can demonstrate a 25% revenue reduction or greater," Hurn said. [Read related article: How to Get Your Business Loan Application Approved]

4. Identify a participating SBA lender.

Some lenders that participated in the first round of PPP are expected to withdraw in this new round, so check with your existing bank or SBA-approved lender to see if they will be participating. Coordinate with them ahead of time to ensure your application is ready to go as soon as the SBA releases more guidance. Additionally, you can submit multiple applications with different lenders, so explore your options and see which lenders are willing to work with you.

"There is no constraint against submitting multiple applications," Ott said. "Don't put all your eggs in one basket with one lender, but parallel-path with multiple lenders. Ultimately, you can only get one loan approved, but it's up to you to decide how aggressively to submit applications. The drawback is you multiply the time it takes to fill out applications."

Should You Offer Group Life Insurance?

Posted: 30 Dec 2020 05:00 AM PST

Having a competitive benefits package is key to attracting top employees. While some benefits, like health insurance and paid time off, provide immediate aid to your employees, others provide more peace of mind for the future.

Group life insurance is one of those benefits. Offering your employees life insurance that can help provide for their families if something catastrophic were to happen to them can be a valuable part of a benefits package.

What is group life insurance?

Group life insurance is a form of coverage that an employer offers to its employees. It is a common employee benefit, since employers can usually offer it for very little cost or even for free.

Research shows that 60% of employees offered group life insurance join their company's plan. Most employers offer group life policies as part of larger benefits packages, such as Section 125 plans.

How does group life insurance work?

Most employer-sponsored group life insurance policies are term life insurance policies. This means that coverage expires after a preset number of years (whereas whole term life insurance, as its name suggests, never expires). For the lifetime of the policy, you cover some or all of the monthly or annual premiums for participating employees.

Most group life insurance plans focus primarily on death benefits, which are paid to a plan participant's beneficiaries if the employee dies. Often, group term life policies primarily cover natural deaths, though some plans include supplemental benefits such as accidental death benefits, which are added to the natural death payout amount. Accidental death benefits may require additional premium payments.

If you offer group life insurance to your employees, you should inform your team about voluntary permanent life insurance, which is an individual life insurance policy that your employees can acquire on their own. That's because employee coverage group plans are tied to your company; if employees leave your business, their plans usually do not go with them (though exceptions exist for some life insurance carriers). Even though you can't provide voluntary permanent life insurance to your team since it's an individual policy, your employees may appreciate you educating them on its availability.

Is there anything that life insurance doesn't cover?

In general, standard death benefits are wide ranging, though there may be select circumstances where they don't apply. These circumstances may include:

  • Participant suicide during the policy's first two years
  • A beneficiary murdering the covered participant
  • Life insurance fraud committed on the policy application
  • Death due to risky hobbies, though this is a less-common reason for insurers not to pay

Standard death benefits do cover accidental benefits. The reason your employees may opt for accidental death benefits is not for accidental death coverage but simply to provide their beneficiaries with more money in the case of an unexpected death.

What are the pros and cons of offering group life insurance?

Pros

Among the reasons you may want to offer group life insurance plans to your employees are:

  • They're so affordable it's hard to justify not pursuing them. You and your insured employees often pay very little for group coverage that their benefits – keeping their families financially secure after their deaths – outweigh the costs.
  • They guarantee coverage. When you offer group insurance to your team, your employees are guaranteed coverage. Individual policies that your employees could pursue on their own outside your company may have stricter requirements for securing coverage.
  • They may improve employee retention. Offering good employee benefits often boosts employee retention, and the low cost of group life insurance makes this benefit one that may keep your team around for longer.

Cons

Among the reasons you might find yourself thinking twice about group plans are:

  • They offer solely basic coverage. With basic coverage, beneficiaries receive, at most, twice the insured's annual salary. Experts advise those interested in life insurance coverage to sign up for policies with payouts of five to 12 times the insured's salary. While basic coverage doesn't reach this threshold, your employees can supplement your company's policy with individual plans of their own. In addition, some employer plans offer employees the ability to purchase additional coverage for higher monthly premiums. 
  • They don't travel with your employees. Although offering group life insurance plans may boost employee retention, there are employees who will leave. And when they do, they don't take your company's life insurance policy with them – well, not in the form you offer it. In some cases, employees can convert your group policy to an individual policy, but that means higher premiums (though this transition does circumvent the normally stricter requirements of obtaining individual plans). 
  • Potential tax ramifications. Although group term life insurance policies are generally low cost enough to not meet the IRS's monetary definition of a taxable fringe benefit, purchasing higher-cost plans could mean paying more taxes. If plan coverage exceeds $50,000, then you must pay fringe benefit taxes on your policy.

What to consider when choosing a group life insurance policy

If you ultimately choose to provide group life insurance for your employees, consider the following as you decide on a plan:

  • Life insurance carrier reputation. Choose a life insurance provider that has a strong reputation and years of practice behind it. When a company has a history of providing business owners like yourself with group life insurance, the odds are higher that should your employees ever have to file a claim, the insurer will likely pay it.
  • Life insurance carrier customer base. If during your research you find that a life insurance company works mostly with large corporations, it may not be a good fit for your small business. You should instead search for a company that mostly provides insurance to companies of your size.
  • Plan term. As mentioned earlier, group term life insurance isn't permanent. That's why, as you pursue group term life insurance plans, you should start an ongoing conversation with your team about the term lengths they'd like to see. Most carriers offer plans that last 10, 20 or 30 years while not being as complicated as group whole life or group universal life policies based on the cash value. 
  • Coverage inclusions. Determine whether the plans you're considering include supplemental accidental death benefits and other optional add-ons such as premium benefits waivers or dependent coverage. Through premium benefits waivers, employees may be able to skip premium payments during periods when they are sick or disabled. Through dependent coverage, the benefit scheme of life insurance is reserved – if the insured takes out coverage on one of their dependents and that dependent dies, they receive benefits. 
  • Coverage requirements. Although your employees are guaranteed coverage under most plan offerings, some plans may have additional requirements that employees must meet before they qualify for coverage. These may include a minimum number of hours worked every week or completion of a probationary period, which is a minimum length of time for which an employee must work for you before your plan covers the employee. 
  • Termination. Since your employees cannot take group life insurance coverage with them if they cease employment with your company, you should look at what they can do with your policy if they stop working for you. In some cases, employees can convert their group life plans to individual plans, but not all insurers offer this option. Some employees may not want to join your group plan if they can't switch to individual coverage after they leave your company.

How can businesses get group life insurance?

After doing your research to determine the life insurance carrier best for you, contact a licensed insurance agent who helps small businesses obtain group term life insurance. These agents usually work for the company from which you're hoping to buy your plan. Your agent should be able to answer all of your questions about plan premiums, coverage, death benefits, supplemental benefits, adding employees to the plan and navigating coverage exceptions.

Once you're in contact with a licensed agent, you'll need to gather your employees' health and beneficiary information. Your life insurance provider will likely also need your employees' basic identifying information such as their address, date of birth and Social Security Number. With all this information in hand, you can complete your application for group life insurance, and before long, you'll hear back on whether you are approved.
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