What Is Group Term Life Insurance?

What Is Group Term Life Insurance?

Let me explain group term life insurance to you directly: it's a form of temporary life insurance where one contract covers multiple individuals. You'll often see this through companies, where the employer gets the contract and extends coverage to employees as a benefit. Many employers give you a base level of this coverage for free, and you can buy extra for yourself, your spouse, or your kids. Associations and professional groups also offer it.

Compared to individual life insurance, group term is cheaper, which means a lot of people sign up for it.

Key Takeaways

You should know that many employers include basic group term life insurance in your benefits package at no cost. You can usually add more coverage for yourself or family. If you leave your job, converting to an individual policy is possible, but expect higher costs. It's smart to have both group and individual policies.

How Group Term Life Insurance Works

According to the U.S. Bureau of Labor Statistics, 57% of private sector workers and 83% of government employees get life insurance at work. These policies are term-based and go to employees who qualify, like permanent staff after 30 days. You can adjust coverage for life events or during open enrollment.

Coverage is often based on your salary, with premiums tied to your age. Employers pay most or all for basics, and you pay for extras, usually in salary multiples. Like other life insurance, it pays a death benefit to your chosen beneficiary if you die while covered. You'll get a certificate as proof.

Tip on Portability

Be aware that if your company offers this, you might not take it with you when changing jobs. Employer group term life isn't always portable.

Advantages and Disadvantages of Group Term Life Insurance

Group term is generally cheap, especially if you're young, and you don't need underwriting—eligible employees get covered automatically. But unlike individual term plans that lock rates for 20-30 years, group plans have rate bands that increase costs at certain ages, like 30, 35, 40, as detailed in your plan document.

The coverage might not suffice for your family, as it's limited by factors like your tenure, salary, dependents, and status. You can't customize it like a personal policy. Coverage often ends when you leave the job, though some let you port it or convert to an individual permanent policy. Conversion isn't automatic, might need underwriting, and could mean higher premiums or less competitive options.

Important Note on Coverage Types

Some employers only provide accidental death & dismemberment insurance, which covers only accident-related deaths or injuries, not natural causes, and has limitations. Always check the details to understand your coverage.

Requirements for Group Term Life Insurance

You're typically auto-enrolled in base coverage once eligible, which varies by plan—maybe working certain hours or time on the job. For association-based group term, you need to maintain membership.

Supplemental coverage availability differs; it might include extras for you, spouse, or kids. You can enroll at hiring, during life events, or open enrollment. It may require simplified underwriting, where you answer health questions instead of an exam, and the insurer decides eligibility.

Special Considerations

Employers can give you up to $50,000 in tax-free group term coverage. Anything over that, if employer-paid, is taxable on your W-2.

Compare your employer's offer with individual policies to get the best deal. Revisit your choices yearly during open enrollment to ensure it fits. Think of group insurance as part of your overall plan. Figure out how much you need, term or permanent, and for how long.

Does Group Term Life Insurance Provide Permanent Coverage?

No, it's temporary, lasting while you work or pay through an association. It doesn't last a lifetime or build cash value like permanent insurance.

Am I Required to Pass a Medical Exam to Apply for Group Term Insurance?

For standard employer coverage, no exam is needed for eligible employees. But for supplemental, you might need an exam or health info.

How Does Basic Group Term Life Differ From Supplemental Insurance?

Basic is what employers provide at low or no cost to all eligible. Supplemental is optional extra you buy for more coverage on yourself or family.

Is Supplemental Insurance a Good Choice?

It depends on your needs and existing coverage. It adds beyond basics and can be useful if health issues make private insurance hard to get, though options are limited.

The Bottom Line

Group term life through work or associations gives you affordable, straightforward coverage for family protection if you die. But it's temporary and might not be enough alone, so combine it with your own individual policy.