Group Life Insurance: How It Works, Types, Pros & Cons

What Is Group Life Insurance?

Group life insurance is offered by an employer or another large-scale entity, such as an association or labor organization, to its workers or members. It is fairly inexpensive, may even be free for certain employees, and is pretty common nationwide.

Group life often has a relatively low coverage amount and is offered as a piece of a larger employer or membership benefit package. Members of a group life policy do not need to submit to a medical examination and are not subject to individual underwriting.

Key Takeaways

  • Group life insurance is offered by an employer or another large-scale entity, such as an association or labor organization, to its workers or members.
  • Group life insurance is fairly inexpensive and may even be free since many members pay into the group policy.
  • Some organizations require group members to participate for a minimum amount of time before they are granted coverage, which is generally pretty basic.
  • Group life policies do not require individuals to complete a medical exam or underwriting.
  • Group life policy death benefits are generally limited.

Life Insurance

Understanding Group Life Insurance

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. People who choose to take more-advanced coverage alongside it may elect to have their portion of the premium payment deducted from their paycheck. Just as with 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.

The typical group policy is for term life insurance, often renewable each year with a company’s open-enrollment process. This is in contrast to whole life insurance, which provides coverage no matter when you die. Whole life insurance policies are permanent, have higher premiums and death benefits, and constitute the most popular type of life insurance.

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 an individual leaves the company or organization and terminates their coverage.

Requirements for Group Life Insurance

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.

Coverage is normally only valid for as long as a member is part of the group. Once the member leaves, whether through resignation or firing, the coverage ends.

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

Advantages and Disadvantages of Group Life Insurance

The biggest appeal group life insurance has for employees is its value for money. Group members typically pay very little, if anything at all. Any 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, group insurance doesn’t require a medical exam.

However, low cost and convenience aren’t everything. Group life insurance generally comes with only basic coverage, which means it may not fulfill the needs of policyholders. Typical amounts are $20,000, $50,000, or one or two times the insured’s annual salary. That’s why experts say it should be treated as a perk and supplemented with a separate individual policy, rather than being seen as sufficient standalone coverage.

Another drawback is that the employer controls the policy, which means your premiums can increase based on decisions that your employer makes. If an organization opts to terminate group life insurance—or a person decides to switch jobs—coverage usually stops. However, the former employee does have an option to continue coverage 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 want the greater cost, those who are otherwise uninsurable will benefit from the conversion, as a medical exam still would not be required.

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 it 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.

Group Life

  • No medical underwriting

  • Inexpensive to buy (or paid by the employer in some cases)

  • May be able to add coverage for dependents

  • Relatively low death benefits

  • Not portable once you leave the organization

  • Organization controls the policy and its terms

When searching for a policy to supplement your employer's plan, thoroughly research and compare all of your options to make certain you're getting the best life insurance policy possible.

What Is the Purpose of Group Life Insurance?

Group life insurance is a common employee benefit that provides a death benefit to the insured's beneficiaries if they die while part of the organization. The purpose is to provide financial support to the families of such employees.

What Happens to Group Life Insurance Coverage After I Retire?

Once you leave the organization, group life insurance terminates (either immediately or after a short grace period). This includes being fired, quitting, changing jobs, or retirement. Certain employees may be able to convert their group coverage into an individual policy upon retirement, but the employer may not continue to pay these premiums.

What Are the Types of Group Life Insurance?

The most common type of group life insurance is group term insurance that renews yearly. This type of insurance provides only a death benefit and is the least expensive option. Group universal life is more expensive, but offers the opportunity to build cash value alongside the death benefit. Variable group universal life is similar but offers an investment option for increasing the potential returns on the cash value portion.