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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, which typically is inexpensive or even free, and has relatively low coverage amount, is typically offered as a piece of a larger employer or membership benefit package.

BREAKING DOWN 'Group Life Insurance'

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, or they may elect to have their portion of the premium payment deducted from their paycheck.

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 will be necessary to provide to a subsequent insurance company in the event that the individual leaves the company or organization and terminates their coverage.

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.

Group Life Insurance Pros and Cons

The biggest appeal to employees for group life insurance is its value for the money. Group members typically pay very little if anything, usually drawn directly from their weekly or monthly gross earnings, for a policy offering a relatively modest coverage level.

It's offered by employers a benefit for its staff, and is fairly common nationwide. As Insure.com points out, in 2016, some 46 percent of life insurance policies in the U.S. were group policies, offering about $8.2 trillion in protection, according to the American Council of Life Insurers.

Qualifying for group policies is easy, with coverage guaranteed to all group members, unlike individual policies, which usually require a medical exam.

But with that convenience and low cost comes a coverage level that's much smaller than the majority of policyholder's need for life insurance that covers their needs. That's why experts say it should be treated as a perk, as a supplement to a separate individual policy, rather than a sufficient standalone.

Another reason is that the employer is in control of the policy, rather than the employee. If an organization opted to terminate group life insurance, or a person decided to switch jobs, coverage would stop.

Some organizations do offer the opportunity for group members to purchase more coverage than their basic life insurance offering. That extra voluntary coverage might make financial sense, because even the added premium will usually 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.

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