Group term life insurance remains a common employee benefit, offering affordable coverage to a large number of individuals through a group policy.
It originated as an employee benefit offered by employers to attract and retain talent in the early 20th century.
It then gained popularity during World War II when employers began providing life insurance coverage for their employees, boosting morale and providing financial security during wartime.
Typically, it is offered as part of a benefits package by employers, associations, or organizations.
Group term life insurance is an essential component of financial planning, ensuring families have some protection in case of a tragic loss.
What is Group Term Life Insurance?
Group term life insurance is a type of temporary life insurance in which one contract is allocated to cover multiple people.
The most common group is a company where the contract is issued to the employer who then delivers coverage to employees as a benefit.
Many employers provide, at no cost, a base amount of group coverage plus alternatives for employees to purchase supplemental coverage for themselves as well as their spouses and children.
Group term is also sold by different associations and professional organizations. This type of life insurance is relatively cheap compared to individual life insurance. As a result, participation is heightened.
How Group Term Life Insurance Works
Life insurance is available to 57% of private company workers and 83% of government employees through the workplace, according to the U.S. Bureau of Labor Statistics.
Group life insurance policies are generally written as term insurance and delivered to employees who meet eligibility requirements, such as being a permanent employee who has been with the company for at least 30 days.
Group term life insurance coverage can be modified for qualifying life events or during an open enrollment period.
The standard amount of coverage is typically tied to the covered employee’s annual salary, with premiums primarily based on the insured’s age. Employers usually pay most or all of the premiums for basic coverage.
Additional amounts, ordinarily in multiples of the employee’s yearly salary, may be offered for an extra premium paid by the employee.
As with other types of life insurance, group term pays out a death benefit to the beneficiary you select if you pass away while the policy remains in effect. Insured members often obtain certificates of insurance as proof of coverage.
If your company presents group term life insurance, you may not be able to “take it with you” if you change jobs. Employer-provided group term life insurance is not constantly a portable benefit.
Advantages and Disadvantages of Group Term Life Insurance
Group term coverage is generally affordable, especially for younger people. Participants are not typically required to go through an underwriting process, as all eligible employees are automatically covered.
However, unlike individual term insurance plans, which generally lock in a rate for 20 to 30 years, most group plans have rate bands in which the cost of insurance automatically goes up in increments (for example, at ages 30, 35, 40, etc).
The premiums for each rate band are summarized in the plan document provided by the employer. While affordable, the amount of coverage offered by group life insurance may not be enough for many families.
Employers or association groups offering the insurance often restrict the total coverage available to employees or members based on factors such as tenure, base salary, number of dependents, and employment status, Participants cannot customize group term coverage to meet individual demands like they could with their own policy.
Lastly, group term coverage often ceases when an individual’s employment terminates.
Some employers do allow ex-employees to keep the same coverage, known as porting the life insurance. Former employees could also possibly change the group term to an individual permanent policy.
The conversion options vary, may not be automated, and could require underwriting. Consequently, an individual could be presented with a policy with a much higher premium.
Also, the policies available when converting may be restricted and are not always the most competitive products. Some employers only present accidental death & dismemberment insurance.
AD&D policies only cover deaths or severe injuries resulting from an accident (rather than from natural causes) and include significant coverage limitations.
Always read the fine print to be sure you understand your group coverage and advantages.
Requirements for Group Term Life Insurance
Typically, all employees are automatically enlisted in the base coverage once they meet the eligibility requirements. Those requirements differ by plan and employer.
They can include working a certain number of hours each week or being an employee for a certain period of time.
Group term life sold by associations (such as fraternal organizations, trade groups, and charitable groups) contains other requirements, such as maintaining membership in the organization.
The availability of supplemental group term coverage also varies among employers. They may offer extra coverage for the employee beyond the base insurance, as well as alternative insurance for a spouse and/or children.
In some plans, individuals can only enroll for supplemental insurance when they are originally employed or upon a qualifying life event, such as the birth of a child.
In other plans, supplemental group term coverage can be added during open enrollment durations.
Supplemental coverage might require underwriting. Normally, it is a simplified underwriting process whereby the insurance applicant answers some questions to determine eligibility rather than undergoing a physical exam.
The carrier then determines whether or not it will offer the additional coverage.
Employers are permitted to provide employees with $50,000 of tax-free group term life insurance coverage as a benefit.
Any amount of coverage above $50,000 that is paid for by an employer must be acknowledged as a taxable benefit and included on the employee’s W-2.
It’s worth comparing your employer’s offering with what you could get buying your own individual policy to guarantee that you’ll be receiving the best term life insurance policy possible.
It is also essential to revisit the coverage you selected during open enrollment each year to make sure the plan still fits your needs.
Consider your employer-sponsored group life insurance to be one component of your insurance plan. To estimate your total needs, and understand how group insurance can play a part, it makes sense to determine the following:
- How much life insurance, if any, do you require?
- What kind of coverage (term or permanent) means more to you?
- How long will you desire the coverage to stay in force?
Does Group Term Life Insurance Provide Permanent Coverage?
No, group term life insurance provides temporary coverage while you work for your employer, or while you pay premiums through a membership association.
Unlike permanent insurance, term life does not stay your entire lifetime and does not accumulate cash value.
Am I Required to Pass a Medical Exam to Apply for Group Term Insurance?
Most employer-based plans provide a standard amount of coverage to all qualified employees with no medical exam.
However, if you want to buy supplemental coverage for yourself or your family members, you may be required to take a medical exam or provide additional health information when you apply.
How Does Basic Group Term Life Differ From Supplemental Insurance?
Employers provide a basic level of group term life insurance at little or no cost to all qualified employees.
Supplemental coverage is optional insurance at work that employees can buy for an additional premium if they want more coverage for themselves, their spouse, or their children.
Is Supplemental Insurance a Good Choice?
It all relies on your insurance needs and what other coverage you already have. Supplemental insurance for yourself and your family members supplies additional coverage beyond your employer’s standard limits.
While supplemental insurance offers fewer options than other types of policies, it can be advantageous if your health history or age makes it difficult to obtain coverage through a private insurer.
Group term life insurance through your employer or an association offers inexpensive, easy-to-get coverage that provides financial protection for your family if you die.
However, employment-based group life is temporary coverage that may not deliver a sufficient death benefit to meet all your family’s financial needs.
Contemplate combining group term life insurance with your own individual life insurance policy.
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