Group term life insurance is a type of temporary life insurance where a single contract is issued to cover multiple individuals. The most common group usually consists of company employees, with the employer serving as the policyholder. This insurance type offers a base amount of coverage often at no cost to employees and includes options to buy additional coverage for spouses and children. Professional associations and various organizations also offer this type of life insurance.
Group term life insurance is generally more affordable than individual life insurance, which often results in higher participation rates.
Key Takeaways
- Many employers provide basic group term life insurance free of charge as part of a benefits package.
- Additional coverage options are available for employees and their family members at an extra cost.
- Upon leaving a job, you may be able to convert group term life insurance to an individual policy, though it might be more costly.
- It’s possible to maintain both group term life insurance and an individual policy simultaneously for comprehensive coverage.
How Group Term Life Insurance Works
According to the U.S. Bureau of Labor Statistics, 57% of private company employees and 83% of government employees have access to life insurance through their workplace. Group life insurance policies are typically structured as term insurance and are available to employees who meet specific eligibility criteria, such as being a permanent employee for at least 30 days. Coverage can often be adjusted during open enrollment periods or after qualifying life events.
The coverage amount is generally tied to the employee’s annual salary, and premiums depend largely on age. Employers usually bear the full cost or most of the premiums for basic coverage, while additional coverage options are available for extra premiums paid by the employee.
Like other life insurance types, group term life insurance pays out a death benefit to a designated beneficiary if the insured person passes away while the policy is active. Insured employees receive certificates of insurance as proof of coverage. However, group term life insurance may not be transferable if you change jobs, as it’s not always a portable benefit.
Advantages and Disadvantages of Group Term Life Insurance
Group term life insurance is generally less expensive, especially for younger individuals, and typically does not involve an underwriting process—eligible employees are automatically covered. Unlike individual term plans, which have a locked-in rate for 20 to 30 years, group plans have rate bands wherein the insurance cost rises incrementally (e.g., at ages 30, 35, 40, etc.). The specified premiums are mentioned in the plan document provided by the employer.
Despite its affordability, the coverage amount may not suffice for many families. Employers often set upper limits based on factors like tenure, salary, and number of dependents. The inability to customize the policy to meet individual needs is another downside.
Finally, group term life insurance typically ends with employment termination, though some employers offer options to maintain coverage or convert it to an individual permanent policy. Conversion might require underwriting and can result in higher premiums. Moreover, options for converted policies may be limited and not competitively priced. Some employers provide accidental death & dismemberment (AD&D) insurance instead, which has significant coverage limitations and only covers deaths or severe injuries resulting from accidents.
Requirements for Group Term Life Insurance
All employees meeting specific criteria, which vary by employer, are typically automatically enrolled in the base coverage. Criteria might include working a minimum number of hours per week or being employed for a certain duration. Associations offering group term life insurance have other requirements like membership status.
Supplemental group term life insurance availability varies by employer, who may offer additional coverage for the employee and optional insurance for spouses and children. Enrollment for supplemental insurance might be at initial employment, during qualifying life events, or during open enrollment periods. Simplified underwriting is often required for supplemental coverage, involving health-related questions rather than a physical exam.
Special Considerations
Employers can provide up to $50,000 of tax-free group term life insurance coverage. Amounts exceeding $50,000 are taxable and must be reported on the employee’s W-2 form.
Comparing the employer’s offering with private life insurance policies helps ensure optimal coverage. Revisiting the coverage selected during annual open enrollment ensures the plan continues to match your needs.
Group term life insurance should be considered a component of your overall insurance plan. Assessing your total insurance needs involves determining how much life insurance you require, the ideal type (term or permanent), and the duration of coverage.
Does Group Term Life Insurance Provide Permanent Coverage?
No, group term life insurance offers temporary coverage linked to employer-based or association-based term policies. Unlike permanent insurance, it does not last a lifetime and doesn’t accrue cash value.
Am I Required to Pass a Medical Exam to Apply for Group Term Insurance?
Most employer-based plans offer a standard amount of coverage without requiring a medical exam. However, purchasing supplemental coverage for yourself or family members might necessitate a medical exam or additional health information.
How Does Basic Group Term Life Differ From Supplemental Insurance?
Basic group term life insurance is provided by employers at little or no cost for eligible employees. Supplemental insurance can be bought additionally to enhance coverage limits for employees, spouses, or children at extra cost.
Is Supplemental Insurance a Good Choice?
Supplemental insurance is worthwhile if you need more coverage beyond your employer’s basic plan or if pre-existing health conditions make private insurance difficult to obtain. It offers additional cover though with fewer options compared to private policies.
The Bottom Line
Group term life insurance through your employer or association is an affordable and easy-to-obtain option providing financial security for your family upon your demise. Nevertheless, it is temporary and may not offer sufficient coverage. Integrating group term insurance with an individual life insurance policy ensures comprehensive protection for your family’s financial needs.
Related Terms: individual life insurance, term life insurance, accidental death & dismemberment insurance, permanent life insurance.
References
- Bureau of Labor Statistics, U.S. Department of Labor. “Employee Benefits in the United States - March 2022”.
- Sproutt. “Group Life Insurance”.
- Minnesota Life. “Employee Group Term Life Certificate of Insurance”.
- Guardian. “Group Term Life Insurance at Work: What You Should Know”.
- WAEPA. “Group Term Life Insurance Rates”.
- Securian Financial. “Buying Life Insurance at Work”.
- Guardian. “Portability Vs. Conversion”.
- Prudential. “What is Supplemental Life Insurance?”
- Internal Revenue Service. “Group Term Life Insurance”.
- Progressive. “What Is Supplemental Life Insurance?”
