What is 'Yearly Renewable Group Term Insurance '

Yearly renewable group term insurance is a type of life insurance policy purchased by employers to cover their employees. Unlike individual life policies, the group plans do not require employees to submit to a medical exam. The policy is reviewed and renewed on a yearly basis, which helps reduce premiums paid by the employer.

BREAKING DOWN 'Yearly Renewable Group Term Insurance '

Yearly renewable group term insurance is a relatively new form of life insurance, at least compared with the centuries-old history of individual life insurance. In 1911 the Pantasote Leather Company of Passaic, N.J. initiated the first renewable group plan for its workers. Today, most large employers offer similar plans, which are collectively worth trillions of dollars in potential benefits. Most companies cover the entire premium cost, but some require employees to pay a portion.

While free or subsidized life insurance is a nice employment perk, individual benefits have limitations: a typical policy pays benefits of one or two times the employee’s annual salary. By contrast, most experts recommend anyone with dependents carry 10 times their annual salary in life insurance. In that light, employer group term insurance mostly is added protection rather than complete coverage.

Most plans do include sweeteners, such as an accelerated benefit provision for policyholders who contract a terminal illness. Also, many wave premium payments for disabled workers. Some also extend coverage for accidental death or dismemberment (AD&D).

Premiums Rise as Employees Age

Every year, the insurance company reviews the policy, as well as the work force and claim history to determine the total premium for the subsequent year. Many insurers reduce the premium if the company’s workers have fewvclaims. However, premiums tend to rise for older employees. In most cases companies reduce coverage for older employees when rates rise, a practice that is legal under the Age Discrimination in Employment Act, as long as the reductions are across-the-board for specific age cohorts.

Tax Ramifications

Like individual term life policies, group term policies offer no savings or cash value buildup; they are straight insurance policies, with the benefit paid to the designated beneficiary at death. The premiums paid by employers are tax deductible as a business expenses, and benefits paid out are exempt from individual income tax. The premiums are not considered income unless your insurance policy has a benefit value greater than $50,000.

State laws vary on an employee’s right to continue coverage after leaving a job, or if the company terminates the group policy. Usually employees have a year to continue on the plan; after that they often need to undergo a medical exam and will probably pay higher premiums. 

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