A Complete Guide to Group Universal Life Policy
A group universal life policy is a type of universal life insurance offered to a group of individuals at a reduced cost compared to individual policies. This insurance is commonly purchased by corporations aiming to provide employees with comprehensive life insurance coverage. These policies ensure permanent insurance along with an option to increase savings, all at a typically more affordable rate.
Key Takeaways
- Affordable Group Rates: Group universal life policy is designed to offer universal life insurance to groups at a lower cost than individual plans.
- Payroll Deductions: Employers may cover the entire cost or split premiums with employees through pre-tax payroll deductions.
- Savings Component: Besides the death benefit, these policies come with a savings component that accumulates cash in an account with a guaranteed fixed interest rate.
- Flexible Withdrawals: Employees can withdraw from the savings component at any time without incurring tax penalties or allow the cash to accumulate.
How Group Universal Life Policies Work
Many businesses include group universal life insurance as part of their employee benefits package, sometimes extending coverage to spouses and immediate family members. Like other types of policies, group universal life insurance offers a death benefit and a savings component, providing dual financial benefits.
Policyholders opt for coverage based on base salary. For example, an individual earning $50,000 annually may choose a coverage option of $150,000, which pays out to beneficiaries upon the policyholder’s death, provided premiums are maintained.
Employee premiums can be fully employer-covered or shared through pre-tax payroll deductions, making the overall cost cheaper than individual life insurance policies. Much like buying in bulk decreases per-item costs, group policies reduce per-person expenses.
From the second policy year onwards, a cash value accumulates in a guaranteed account, continually growing with a fixed interest rate. This cash can be withdrawn tax-free at any time, allowing significant convenience. Employees are flexible to start, alter, or stop additional premiums anytime without extra charges, offering great adaptability.
Special Considerations
A group universal life policy does not offer dividends, unlike some life insurance types. Dividends, if provided by certain policies, are determined annually by a company’s board of directors and are neither consistent nor guaranteed. Policyholders preferring dividend benefits should evaluate other life insurance plans.
Advantages and Disadvantages of a Group Universal Life Policy
Life insurance can have several stipulations and be quite costly. Group coverage via an employer tends to be cheaper than individual policies and may offer guaranteed acceptance without complex medical inquiries. Here are more advantages:
- Portable Coverage: The insurance remains active even if you shift jobs or retire.
- Accelerated Benefits: Provides coverage for terminal illness diagnoses.
- Waiver of Premium: No need to pay premiums upon total disability.
Conversely, specific drawbacks come with group policies. Without portable coverage, you risk losing your policy if you change or lose your job. Moreover, employer-mediated coverage may not meet sufficient needs, especially if expanded coverage necessitates higher premiums or a medical examination.
How to Obtain Group Universal Life Insurance
Typically, group universal life insurance is provided by employers as a benefit. The significant allure is that it’s far more affordable than policies an individual would purchase independently.
Additional Benefits
These policies often carry a cash-savings advantage, which earn a fixed minimum interest rate and may be portable, allowing retention post job change or retirement.
Potential Disadvantages
If you leave or lose your job, your policy may cancel unless it’s portable. Additionally, the extent of coverage provided by an employer may not always meet personal requirements, and expanding coverage might involve extra costs and a medical examination.
Note: This article was corrected on September 15, 2023, to clarify that group universal life insurance policies do not distribute dividends.
Related Terms: Universal Life Insurance, Death Benefit, Payroll Deductions, Cash Value.
References
- Metlife. “Group Universal Life Insurance.”
- Prudential Group Insurance. “Group Universal Life Information Guide”. Pages 3-5.
- Western & Southern Financial Group. “What Is Group Life Insurance?”
- Securian Financial. “Group Universal Life Insurance”.
