What are Employee Insurance Benefits? The Employer’s Guide to Employee Insurance

Feli Oliveros

With business costs rising alongside inflation, it may feel tempting to cut back on your employee benefits, or—if you’re just starting out—to avoid offering them altogether. 

But disregarding the needs of your employees can cost you more than just money. Even the most dedicated workers have their breaking points. If they leave, they’ll take crucial institutional knowledge and client relationships with them—while the rest of your team scrambles to pick up the slack.

To remain competitive in your industry and keep employees engaged and motivated, it’s important to offer your workforce the right combination of insurance benefits. So, let’s look at what employee insurance benefits are, why they’re important for both companies and workers, and five commonly offered employee insurance benefits.

What are employee insurance benefits?

Employee benefits refer to any form of compensation a company offers to employees beyond their base salary or base wages. Some benefits are required by law, such as family and medical leave. Any other benefits are typically referred to as perks or fringe benefits, and are offered at the employer’s discretion.

While mandatory benefits remain more or less the same across companies, fringe benefits help differentiate organizations from their competitors and support an employee’s overall well-being.

Employee insurance benefits, on the other hand, are a specific type of benefit that’s often included in employee benefits packages. Insurance benefits include health insurance, life insurance, and disability insurance—we’ll discuss these and more in greater detail below. 

Why are employee insurance benefits important? 

Attractive employee insurance benefits offer many advantages for small businesses and large enterprises alike. Here are six of them:

Attract top talent

Employee insurance benefits are becoming increasingly important to the modern worker—so much so that job seekers include them when comparing job offers. 

One report shows that 83% of employees agree that an employer’s benefits package is essential in helping them decide whether to accept a new job. And according to the findings from another survey, 88% of job seekers give “some consideration” or “heavy consideration” to better health, vision, and dental insurance when choosing between a high-paying job and a lower-paying one with better benefits. 

Employee insurance benefits (or a lack thereof) can even influence whether candidates will apply for a job at all. Oftentimes, job seekers will review the benefits outlined on a job listing or company career page to determine whether it’s worth spending time on an application.

Offering a well-rounded set of insurance benefits, and promoting them to potential applicants, can set you apart in the hiring market and encourage top talent to choose your company over the competition. 

Retain employees

Desirable insurance benefits, like free or low-cost health insurance, also help keep your best employees with the company. When you offer better insurance plans than your competitors, workers may be less inclined to search for new opportunities elsewhere.

Small businesses with limited financial resources might also use insurance benefits to reward strong employees and increase the value of their overall compensation package. Case in point? A BetterUp Labs survey found that 39% of parents would take a pay cut for better benefits that were tailored to their needs. 

After all, even if an employee were to pay for part or all of their insurance benefits themselves, they’ll typically pay less through their employer than if they were to do so out-of-pocket. 

Highlight company values

Employees also want to work at organizations that share similar values with them. In 2022, Qualtrics found that 46% of US and UK employees were thinking of leaving their company because the organization’s values didn’t align with theirs. Another 56% wouldn’t even consider working at a company if they didn’t agree with its values. 

So if you want to attract employees with values similar to yours, offer insurance benefits that put these beliefs on full display. Say your company supports holistic employee well-being. To promote this aspect of your employer brand, you might opt for a health insurance plan that offers free or low-cost mental health services for employees. 

By choosing benefits that align with your company’s views, you show current and prospective employees that your core values aren’t just words in a company handbook. 

Show employees you care

The kind and quality of insurance benefits you offer also show how much you care about your employees beyond your bottom line. Bare minimum benefits signal to potential job applicants that you’re not willing to invest in your workforce, while a comprehensive benefits program indicates just the opposite.

Showing you care also pays dividends for your company. A Gallup poll found that employees who “strongly agree” that their employer cares for them are:

  • 71% less likely to report feeling burned out
  • 69% less likely to search for a new job
  • Three times more likely to be engaged at work

By listening to the needs of your workforce and offering insurance benefits that align with those needs, employees feel that you value them and their feedback—and you ensure your offerings don’t go to waste. 

Improve company performance

A happy and healthy workforce is a productive workforce. Findings from Eagle Hill Consulting indicate that most employees believe their work experience impacts their productivity (70%) and their ability to do meaningful work (69%).

However, the opposite also holds true: Employees who are stressed or sick will not perform at their best, and they’re more likely to get injured on the job or take sick days. 

A 2018 study revealed that, in the US, an average of 92 million work or school hours were lost annually due to emergency dental care. Additionally, adults with poor oral health were more likely to lose more hours to unplanned care than their counterparts with very good oral health. 

Offering insurance benefits that keep your employees healthy isn’t just good for them—it’s great for your business too. 

Increase employee satisfaction 

Workers with benefits that align with their needs and lifestyle are also more likely to be satisfied with their company. According to Gympass, 85% of employees would be more likely to stay with a company if it took better care of their well-being—while 77% would consider leaving a company if it didn’t. 

Workers who are happy with their employer and engaged in their work are also more likely to recommend their place of employment to others, which helps with attracting new employees and reducing recruitment costs.

Save money

Speaking of cost reduction, the right mix of insurance benefits can also be an investment that pays off in the long run. As we touched on earlier, losing dissatisfied employees can cost your company dearly—both directly and indirectly. 

And although companies spend money to maintain these benefits, these expenses are tax-deductible in most cases. You’re allowed to deduct employee insurance premiums from your business income, for instance. Meanwhile, certain health plans—like health reimbursement accounts—offer tax savings for both employer and employee. 

What are the 5 types of employee insurance benefits companies can offer?

If you’re putting together a benefits program for your employees, you might be wondering what kind of insurance benefits would make the most impact for your workforce. To help you make your decision, here we’ve outlined five main types of insurance benefits offered by employers. 

1. Statutory benefits 

Statutory benefits are ones that are required by law, and include a number of insurance benefits you must provide to employees. The ones required by federal law include:

Some state and local governments have instituted additional requirements beyond what’s required by federal law, such as short-term disability insurance. So, as you put together your benefit offerings, remember to review your state and local guidelines as well. 

The following insurance benefits are offered at an employer’s discretion (with a few exceptions), but they can make a difference in the quality of workers you attract and retain at your organization.

2. Health benefits

Most companies will provide their employees with healthcare through insurance or other means. It’s also one of the most popular voluntary benefits: The Society for Human Resource Management (SHRM) revealed that 98% of organizations offered some type of health coverage in 2022.  

With 87% of Americans agreeing that healthcare costs are on the rise, healthcare coverage is a benefit that shouldn’t be overlooked—and here’s why. Fintech company Lively found that, due to costs, nearly half of all adults say they:

  • Haven’t gone to the doctor (46%)
  • Have delayed or skipped medications (45%)
  • Haven’t followed a doctor’s recommendations sometimes or more frequently (44%) 

But rising healthcare costs for employees also means increased insurance expenses for employers. To reduce the financial impact on your company, you may decide to ask plan participants to pay a percentage of their coverage—a practice followed by many organizations. Just make sure to check with your provider beforehand, as some require you to cover a certain percentage of the cost. 

Here are three ways you can help with your employees’ medical needs. 

Health insurance 

When most people think of medical insurance, traditional group health insurance plans often come to mind. This type of benefit provides the same amount of insurance coverage across an organization for procedures and services like:

  • Yearly physicals
  • Doctor fees
  • Prescriptions 
  • Laboratory tests
  • Hospital accommodations
  • Pregnancy and maternity care

Whether your insurance plan offers additional benefits—such as alternative medical care or wellness programs—will depend on the provider and plan you choose

Health insurance is only required if you’re an applicable large employer (ALE) with 50 or more full-time equivalent employees. But, take advantage of this opportunity to invest in your employees if you’re able to. With 35% of employees saying this benefit needs the most improvement, offering valuable healthcare benefits can bring new talent your way.

Supplemental health insurance 

Traditional health insurance plans have coverage gaps that can leave employees vulnerable to certain health concerns. Supplemental insurance plans like the ones below close those gaps so workers can get the help they need when they need it:

  • Dental insurance
  • Vision insurance
  • Critical illness insurance
  • Hospital insurance

But if offering traditional health insurance is out of your budget, don’t worry. You still have a few options available to you.

Health spending accounts

Health spending accounts are a type of savings account that’s used to set aside money for qualified medical expenses. 

These tools give employers an alternative way to cover their employees’ essential medical needs, if they can’t afford to pay for healthcare coverage. It can also be used in conjunction with an existing health insurance plan to cover premiums or out-of-pocket medical expenses—further reducing the burden of healthcare for your employees. 

There are three different kinds of accounts to choose from:

Each one has its own set of requirements, as well as its pros and cons. If your company is interested in this option, do your due diligence to ensure it fits your employees’ needs. 

3. Life insurance 

Some organizations also offer life insurance, which can reassure employees that their families will be taken care of in the event of their death. In exchange for monthly premium payments, an insurance provider pays a lump sum to the beneficiary when the policyholder dies. 

Life insurance plans commonly offered by employers include:

  • Group life insurance
  • Accidental death and dismemberment coverage
  • Split-dollar life insurance 

Many companies offer life insurance benefits to employees free of charge. But if you don’t have the budget for that, you can take an approach similar to that of health insurance—offering coverage with the employee paying for part of the policy.

4. Disability insurance 

This type of insurance is similar to life insurance in that they both replace a portion of an employee’s income if they become unable to work. 

However, disability insurance covers a portion of an employee’s income while they are still alive, in the event of an illness or injury. Some employers may also use this insurance to cover paid maternity leave for those who become pregnant. 

There are two main types of disability insurance offered to employees:

  • Short-term disability insurance: Covers the employee for a short period of time, typically between three to six months
  • Long-term disability insurance: Covers a longer period of time (usually between five to 10 years, or for the rest of the policyholder’s life), after a serious disability prevents an employee from returning to work indefinitely or permanently

Note that five states (California, Hawaii, New Jersey, New York, and Rhode Island) and Puerto Rico require employers to offer disability insurance, so this may not be a voluntary benefit where your company is located. 

5. Pet insurance 

Similar to health insurance, pet insurance helps cover the cost of medical care for a pet’s injuries and illnesses. More comprehensive plans also pay for wellness exams, vaccines, and other preventative care procedures. 

This final benefit may seem surprising, but employer-sponsored pet insurance has become more popular in recent years. In fact, a 2021 survey conducted by Willis Towers Watson revealed that 69% of employers planned to include this benefit in their offerings by 2022 and beyond. 

This comes as a response to the rise in pet owners, particularly with Gen Z and millennials, during the COVID-19 outbreak. Another survey showed that 70% of dog owners reported a stronger relationship with their pets during lockdown. So, it’s easy to see why 42% of these respondents also believe employers should offer pet insurance in their benefits packages. 

How to design future-proof employee insurance benefits

Different groups of people will require a unique mix of insurance offerings to support their needs and lifestyle. And as the demographics of your workforce change over time, their demands will too.

Take the findings from a recent MetLife survey, for example. It found that millennial employees were more likely than any other generation of workers to say the pandemic impacted their major life plans. As a result, they’re now looking to elect new benefits—such as life insurance and pet insurance—that support them in achieving their personal goals. 

So as you build your benefits program, consider the kinds of employees you want to recruit and retain, as well as the perks that might attract them. Then, survey your employees regularly to ensure your insurance benefits remain competitive and relevant in the years ahead. 

If you’re looking to set up employee benefits for your company, a Gusto benefits advisor can help you design a program that’s competitive, affordable, and easy to manage. Ready to get started? Create your account today.

Feli Oliveros Feli Oliveros is a freelance finance and business writer with experience covering personal and small business finance. In 2015 she graduated from UCLA, where she earned her bachelor’s degree in English and minored in Anthropology.
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