Group Term Life Insurance

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What is 'Group Term Life Insurance'

Group term life insurance is a type of insurance coverage offered to a group by an employer, association or other organization. Coverage provides a benefit to the beneficiaries if a covered individual dies during the covered period. As with some types of group benefits, group term life insurance is generally less expensive than individual policy coverage. For this reason, group term life insurance is often a key component in employee benefit packages.

BREAKING DOWN 'Group Term Life Insurance'

Group term life insurance coverage is made available to eligible employees at the time of hiring or when a benefits open enrollment period begins; association or member group policies have more flexibility as to when members can obtain coverage. Most group term life insurance coverage is simple to secure, done either by checking a box on a benefits form or informing the organization's benefits coordinator. Individuals are not required to undergo medical underwriting to get coverage because the insurance company providing the policy pools the risk of all employees or members to adequately price the risk. Group term life insurance coverage is in place as long as the contract remains paid for by the employer and the employee continues to work for the company providing the benefit. The cost of any additional term coverage is paid for by the employee and generally shows up in box 14 on an employee's W-2 form. Once employment or membership ends, group term life insurance coverage expires.

Total Coverage Available

Employers or association groups that offer term life insurance coverage often limit the total amount of coverage available to employees or members based on a variety of factors, such as time in service (or membership), annual salary or number of dependents. Amounts are limited because insurance companies do not collect health risk data from each individual under the policy. An employer typically offers group term life insurance coverage at no cost to the employee up to $50,000, but the base amount varies by company. If the employee chooses to add supplemental coverage, he can do so up to certain limits, such as $500,000 or five times his annual salary. For dependent or spousal supplemental coverage, group term life insurance coverage is often capped at $100,000 per additional insured. Any group term life insurance coverage offered by an employer that exceeds the base benefit is paid by the insured employee through paycheck deferrals. Group term life insurance offered to members of an association typically does not offer an organization-paid base amount but instead provides a small discount on premiums to eligible members.

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