What Is Group Life Insurance?

Group life insurance is offered by an employer or other large-scale entity such an association or labor organization to its workers or members. This life insurance is fairly inexpensive and may even be free.

Group life insurance is offered by employers as a benefit for its staff, and is fairly common nationwide. It has a relatively low coverage amount and is typically offered as a piece of a larger employer or membership benefit package.

How Group Life Insurance Works

Group life insurance is a single contract for life insurance coverage that extends to a group of people. By purchasing group life insurance policy coverage through an insurance provider on a wholesale basis for its members, companies are able to secure costs for each individual employee that are much lower than if they were to purchase an individual policy.

Those receiving group life insurance coverage may not have to pay anything out of pocket for policy benefits. Anyone who chooses to take more advanced coverage may elect to have their portion of the premium payment deducted from their paycheck. Just like regular insurance policies, insured parties are required to list one or more beneficiaries before the policy comes into effect. Beneficiaries can be changed at any point during the coverage period.

With group life insurance, the employer or organization purchasing the policy for its staff or members retains the master contract. Employees who elect coverage through the group policy usually receive a certificate of coverage which is needed to provide to a subsequent insurance company in the event that the individual leaves the company or organization and terminates their coverage.

According to Insure.com, group life insurance represents more than half of existing life insurance policies in the United States. Coverage of group life insurance extends to 108 million people, while 102 million people carry individual life insurance.


Life Insurance

Conditions of Coverage

Group life insurance policies generally come with certain conditions. Some organizations require group members to participate for a minimum amount of time before they are granted coverage. For instance, an employee may need to pass a probationary period before being allowed to take part in employee health and life insurance benefits.

As noted above, because the premiums are so much lower than an individual life policy, the death benefit is generally much lower as well. Typical coverage amounts under group life policies are $20,000, $50,000, or the insured's annual salary.

Coverage is normally only valid for as long as a member is part of the group. Once the member leaves, coverage ends. For example, an employee is covered for as long as he remains with his company. But if he resigns or is fired, the employer's insurance contract ends.

Key Takeaways

  • Group life insurance is offered by an employer or other large-scale entity such an association or labor organization to its workers or members.
  • Group life insuranceĀ is fairly inexpensive and may even be free.
  • Some organizations require group members to participate for a minimum amount of time before they are granted coverage.
  • This kind of insurance generally provide basic of coverage.
  • Coverage may be terminated or converted to an individual policy once a member leaves the group.

Group Life Insurance Pros and Cons

The biggest appeal group life insurance has for employees is its value for money. Group members typically pay very little, if anything at all. Premiums are drawn directly from their weekly or monthly gross earnings. Qualifying for group policies is easy, with coverage guaranteed to all group members. Unlike individual policies, this kind of policy doesn't require a medical exam.

But insured parties should weigh out the benefits with low cost and convenience. Group life insurance generally comes with basic of coverage, which means it may not fulfill the needs of policyholders. That's why experts say it should be treated as a perk, and should be supplemented with a separate individual policy, rather than acting as a sufficient standalone. Another drawback is that the employer controls the policy. If an organization opts to terminate group life insurance or a person decided to switch jobs, coverage stops.

Some organizations allow group members to purchase more coverage than basic life insurance. That extra voluntary coverage may make financial sense, because even the added premium will still be based on the less-expensive group rate. That part of the policy also may be portable between jobs.

Unlike the basic group policy, additional coverage often requires applicants to answer a medical questionnaire, but may not require an actual physical exam. That could be a good option for people whose health issues might make it difficult to qualify for an affordable individual policy.

Termination of Coverage

The group life insurance policy remains intact until an insured party is terminated or leaves their job. Coverage with employee or member benefits usually ends at this point. But, the person has the option to continue coverage, but would only be able to do so at the individual level. This means the policy is converted from a group life policy to an individual one, which comes with higher premiums. While many people may not consider the higher cost, those who are otherwise uninsurable benefit, as a medical exam still would not be required.

Group life insurance policies remain intact until insured parties are terminated or leave the group.

Group Term Life Insurance

The typical group policy is for term life insurance, often renewable each year with a company's open enrollment process. Group term life insurance, with monthly premiums paid either entirely or in large part by the employer, usually offers lower coverage levels than most experts recommend, usually only one or two times an employee's yearly salary. This is in contrast to whole life insurance, which provides coverage no matter when you die. These policies are permanent, and are the most common type of life insurance. Death benefits for people with whole life insurance are much higher than term life policies, as premiums tend to be higher.