What is Group Term Life Insurance?

Group term life insurance is a type of term insurance whereby the insurer issues the employer a master contract with coverage extended to employees. Group term life insurance is relatively inexpensive compared to individual life insurance. As a result, participation is high. It is commonly a component of a comprehensive benefits package. 

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Life Insurance

How Group Term Life Insurance Works

Group life insurance policies are generally written as term insurance offered as a group benefit to employees who meet eligibility requirements, such as being a permanent employee or 30 days after hire. Group term life insurance coverage can be adjusted for qualifying life events or during an open-enrollment period.

Key Takeaways

  • It is possible to have group term life insurance and an individual life insurance policy at the same time.
  • Many employers offer basic group term life insurance free of charge for employees.
  • When someone leaves a job, converting a group term life insurance policy to an individual life insurance policy may be possible but could be cost-prohibitive for many employees. 

The standard amount of coverage is usually 1-time the annual salary of the permanent employee. Employers typically pay most or all of the premiums for basic coverage. Additional amounts, ordinarily in multiples of the employee's annual salary, are usually offered for an extra premium paid by the employee. 

If your company offers group term life insurance, you may not be able to "take it with you" if or when you change jobs. Typically group term life insurance via an employer is not a portable benefit.

Insured members receive certificates of insurance as proof of coverage. As with individual life insurance, insured parties choose their beneficiaries. Underwriting is typically not required for nominal face amounts. However, most companies set a threshold whereby limited or full underwriting is required.  

Advantages and Disadvantages of Group Term Life Insurance

Employers or association groups offering term life insurance often limit the total coverage available to employees or members based on a variety of factors. These limiting factors include tenure, base salary, number of dependents, and employment statuses such as full-time, associate or executive. 

The amount of available coverage varies per group. Most commonly, employers offer multiples of an employee's salary or fixed amounts, such as $20,000 or $50,000. Dependent benefits may also be available at no cost to the insured. The face amounts for dependents are typically fixed in $5,000 or $10,000 increments. 

As with the employee, or member, the premiums for dependents are relatively inexpensive as compared to individual coverage. Group term life insurance for members of an association are generally offered at a discount, with none of the cost borne by the organization. Coverage is usually provided with annual renewable terms.

Special Considerations

Group term insurance continues until the termination of employment or when the coverage term ends. Often, employers offer terminated employees the option to convert to an individual term or permanent life insurance policy.

Premiums for an individual term and permanent policies are commonly higher premium products than the group policy's premium. Alternatively, some employers allow terminated employees to continue group coverage for an extended period or indefinitely.