What is group term life insurance?
Some employers offer group term life insurance, which is especially beneficial if you’re uninsured
One of the benefits your employer may offer is the chance to enroll in group term life insurance. This is a program employees can sign up for after meeting certain criteria such as working for the company for at least 30 days. Employers cover all or most of the cost.
As of March 2023, 86% of private industry union workers and 55% of private industry nonunion workers had access to life insurance, according to the Bureau of Labor Statistics. This life insurance benefit is inexpensive and you can qualify without underwriting.
However, coverage typically ends when you leave your employer. The death benefit is limited in amount, too, so it’s wise to supplement group term life insurance with another form of life insurance.
Over half of U.S. employers offer some form of life insurance coverage to employees.
Jump to insightGroup term life insurance is low-cost and most employees qualify automatically without lengthy underwriting requirements.
Jump to insightHowever, the monetary value of group term life insurance may not be sufficient, and your policy typically won’t go with you if you leave your job.
Jump to insightHow does group term life insurance work?
Group term life insurance is a benefit employers offer to employees who qualify, with employers typically paying premiums. As with any life insurance, it pays a fixed amount to your named beneficiaries, such as a spouse or other dependents, upon your death.
A group policy spreads insurers’ risk over a larger group of individuals and enables them to offer coverage at a lower cost, said Robert Mavretich, life insurance expert at HealthMarkets.
Stephen Wagner, a certified financial planner at Integrity Wealth Advisors, said, “Since most Americans are underinsured or uninsured, group term life insurance helps close this gap.”
Since most Americans are underinsured or uninsured, group term life insurance helps close this gap. ”
The enrollment process for group term life insurance is simpler than that of individual term insurance. Karl Susman, president and principal agent at Susman Insurance Agency in Los Angeles, said: “There’s no underwriting. As long as you are a member or employee you are eligible for the policy.”
Not only is it fairly easy to qualify for coverage, but employers also usually handle the application process and the billing for the policy.
Mavretich explained that this type of coverage is best suited for employees who might struggle to meet higher underwriting standards typical of individual life insurance policies.
What does group term life insurance cover?
If your employer offers a group term life insurance policy, be sure to read the fine print to know what’s included. Group term life insurance pays a death benefit to your named beneficiaries if you die during the term of coverage, but it’s not a permanent benefit. Plus, Wagner said, coverage usually has a limit of one to two times your annual salary.
Even if your group policy pays more than that, the IRS counts any benefit above $50,000 as taxable if your employer is either directly or indirectly carrying the policy.
Enrollment in a group term life policy primarily covers you (the employee), but some group policies allow coverage of dependents, said Wagner. From a taxable standpoint, the IRS allows $2,000 in untaxed benefits for dependents or spouses of the employee, but amounts exceeding that will be subject to tax.
You can ask your employment benefits representative whether increasing coverage from the basic initial amount is possible. This usually will require you to submit to underwriting and pay additional premiums.
Even if your employer offers group term life insurance, you may still be better off getting an individual life insurance policy not connected to your employment status if you qualify for individual coverage.
Group life insurance vs term life insurance
You must be an employee to take advantage of group coverage, while you can purchase your own individual term life insurance that remains in effect throughout the term as long as you pay the premiums.
As Susman explained, group term life insurance is subject to the employer’s decisions, which means you lose coverage if the employer discontinues the benefit. With individual life insurance, you own the policy and can select your coverage amount, your insurer and the duration of the policy yourself.
If you leave your employer, you also lose group term coverage. On the other hand, individual term coverage is “not dependent on where or if you are working,” Susman clarified. That’s a good reason not to rely solely on group term life insurance.
Susman recommended having an individual term life insurance policy if you’re able. But there’s still a place for group term live coverage. “It can be helpful to supplement your personal term life insurance with a group term life policy since the process is fast and it tends to be inexpensive,” he said.
Who should get group term life insurance?
Look into the different types of life insurance to determine what fits your needs. While group term life insurance may not fulfill all your requirements, it serves an important purpose for those who can benefit most from it. People who should consider getting group term life insurance include:
- People who are uninsured
- Those who can’t qualify for life insurance at reasonable rates
- People who want to supplement individual term life insurance coverage
Since employers typically cover most, if not all, of the premiums for group term life insurance, it may be a no-brainer to enroll in the policy. It’s better than no coverage at all. Just be sure to understand the limitations of group term life insurance.
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Pros and cons of a group term life insurance
Group term life insurance is useful for protecting your loved ones in the event of your death, especially if you have no other life insurance coverage. It’s inexpensive and doesn’t require underwriting. However, the amount of coverage typically isn’t enough for many families’ needs and the coverage usually doesn’t go with you when you retire or move companies.
However, in some cases, you may be able to take your policy with you upon leaving your employer. Progressive says that if your policy is portable, you may keep your coverage by paying premiums directly to the insurance company, though this is uncommon.
Pros
- Free or very inexpensive
- No underwriting process or medical exam
- Up to $50,000 in benefits is nontaxable
Cons
- Coverage ends when you leave your job
- Basic death benefit may not be enough
- No cash value
How to get group term life insurance
The main qualification for enrollment in group term life insurance is to be employed with an employer that provides this benefit. Your eligibility may not kick in until you’ve worked for that employer for 30 days or more.
You’ll complete basic paperwork to enroll in a policy. If you want coverage above and beyond the initial coverage, Mavretich said you’ll need to pass the underwriting process and make payments.
A great benefit of group term life insurance is the lack of hurdles to qualify – namely, the lack of underwriting. Wagner said, “This allows uninsured or otherwise compromised employees to obtain coverage.” If you have medical conditions that disqualify you from individual coverage, a group term life policy can help.
If you don’t have an employer’s group life insurance policy, other options include individual term life insurance coverage or whole life coverage.
- Individual term life insurance coverage: Purchase directly to cover you for a term – usually 10 to 30 years.
- Permanent life insurance coverage: Pay higher premiums and get lifetime coverage as well as cash value. Types of this include whole-life and universal life insurance.
FAQ
Does group term life insurance have cash value?
No. Group term life insurance only provides cash benefits to beneficiaries upon the policyholder’s death during the policy term. There is no cash value in a group term life policy.
How much does group term life insurance cost?
If your employer pays 100% of the premiums, group term life insurance is free to you as an employee. It’s usually less expensive than comparable individual term coverage. “Because it’s nonportable and limited in coverage, the cost is minimal and is generally paid as an employee benefit,” said Wagner.
Does group term life insurance give you permanent coverage?
No, you are only covered during the term and while employed with that particular company. Permanent life insurance types include whole life and universal life insurance, but those come with higher premiums.
Bottom line
Group term life insurance offers a financial lifeline for family and other dependents when you die. Employers may provide group term life coverage at little to no cost to their employees who meet certain minimal criteria.
While there’s no major downside to getting a group term life insurance policy if it’s available, it may not cover all your financial needs. The monetary payout is limited and coverage won’t follow you to another job or into retirement. It’s wise to consider group term life insurance as a supplemental benefit of your job and purchase separate life insurance.
Article sources
- Bureau of Labor Statistics, “Employee Benefits in the United States — March 2023.” Accessed May 8, 2024.
- IRS, “Group-Term Life Insurance.” Accessed May 8, 2024.
- Progressive, “What happens to life insurance when you leave a job?” Accessed May 8, 2024.
