What Is a Group Universal Life Policy?
A group universal life policy is a form of universal life insurance offered to a group of people at a lower cost than what is typically offered to an individual. Group universal life insurance is commonly purchased by corporations that want to provide their employees with life insurance coverage. These policies provide each insured party with permanent insurance coverage with an option to grow their savings.
- A group universal life policy is universal life insurance offered to a group of people at a lower cost than what is typically offered to an individual.
- Employers may cover the entire cost of coverage or split premiums with employees through regular pre-tax payroll deductions.
- These policies also come with a savings component, allowing cash to accumulate in a guaranteed account with a fixed interest rate.
- Employees can choose to make withdrawals at any time without any tax penalties or leave the cash to accumulate.
How Group Universal Life Policies Work
Many businesses feature group universal life insurance as part of their employee benefits package. In some cases, coverage may be extended to spouses and other, immediate family members of employees as well. Like other policies, group universal life insurance pays a death benefit to the insured party's beneficiaries but also features a savings component—two distinctly different financial benefits.
Policyholders choose coverage that starts with the amount of their base salary. From there, the amount of coverage depends on the individual's financial situation and the needs of their beneficiaries. For instance, someone who earns $50,000 per year may choose a coverage option of $150,000—three times their salary—based on their current situation. This amount is paid to their beneficiaries upon their death as long as the premiums are paid.
Employers may cover the cost of the premiums in their entirety, while others split the cost of coverage with their employees through pre-tax payroll deductions. The cost of coverage is much less than paying for an individual policy. It's akin to buying food items in bulk. The cost to cover each individual is much cheaper because the policy is designed to cover a large group, just as purchasing a large amount of a particular grocery item is cheaper on a per-item basis than buying each item separately.
Policies generally accumulate cash value after about a year—an amount that increases every year thereafter. These sums are relegated to a guaranteed account, earning the policyholder a minimum fixed interest rate. Cash value is available for withdrawal at any time, at any age— usually without tax penalties. Policyholders may choose to leave the savings in the policy and allow the cash value to grow. Employees can start, change, or stop additional premiums at any time, without charge. Policyholders also get the convenience of making contributions via payroll deductions, or they may contribute any lump sum in addition to their premiums.
Cash values generally accumulate after a year, grow at a fixed rate, and can be accessed tax-free at any time.
A group universal life policy may also receive dividends. The amount of a dividend is set by a company’s board of directors each year and are not guaranteed. When a dividend is payable, a policyholder can take it in cash or use it to purchase more insurance. They may also be used to pay or reduce premiums. Earned dividends usually tend to fluctuate from year to year.
Advantages and Disadvantages of a Group Universal Life Policy
Insurance can be expensive and may have many different requirements. Taking group coverage through your employer can be cheaper than taking out an individual policy on your own. You may also be able to get guaranteed coverage without having to answer too many medical questions.
Some employers also provide some other benefits with these policies:
- Portable coverage: This allows you to continue coverage even when you change jobs or retire.
- Accelerated benefits: This type of coverage is extended to anyone diagnosed with a terminal illness
- Waiver of premium: You may not have to pay a premium if you become totally disabled.
There are also some distinct disadvantages to group coverage. First, if you don't have portable coverage, you will lose your policy if and when you leave or lose your job. Secondly, because the policy is provided through your employer, you may not be able to get as much coverage as you want and/or need. Keep in mind, if you want to increase the amount of coverage, you're probably going to have to pay more and you'll likely have to take a medical exam.
How do I get group universal life insurance?
This form of permanent life insurance is typically offered by an employer as a benefit to employees. One of the biggest advantages is that the cost is much lower for the customer than if they had purchased the policy on their own.
What are some other benefits?
These policies come with a cash-savings benefit that earn the policyholder a minimum fixed interest rate. They may be portable, permitting the owner to keep the policy if they change jobs or retire.
Do group universal life insurance policies have any disadvantages?
The policy is canceled when you leave or lose your job, unless you have a portability option. Another thing is that since your employer is offering the policy, you may not be able to get as much coverage as you want or need. If you want to increase coverage, you're probably going to have to pay more and get a medical exam.