What Is Group Life Insurance?

Read our guide to find out what group life insurance is and whether you should get it.
By Mike Parker
Updated Sep 8, 2022
A group of employees who have Group Life Insurance as part of their employment contract.
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Group life insurance covers employees or members of an organization's health insurance. It may also offer additional benefits, such as oral care, vision health, and prescription drugs.

Getting group life insurance can be a difficult choice because there are many factors to consider. Fortunately, we can assist you through the process.

This article will discuss group life insurance and cover the different factors you should consider before getting it.

What Is Group Life Insurance?

Group life insurance is a type of insurance that covers multiple people under one plan. They are usually offered by companies, trade associations, professional associations, and unions.

For example, if you join a new company, they might offer group life coverage as an employment benefit. 

Similarly, if you become a member of a professional association, you might be offered the opportunity to join their group life cover plan.

The costs of group life insurance can either be covered by the employer in full or be subsidized.

Depending on your company and their chosen plan, employees can get coverage anywhere from $50,000 to double their annual salary.

Terms you should know:

Beneficiary: A person who receives the death benefit (payout) from a life insurance policy in the event of the policyholder’s death.

Premiums: These are monthly or annual amounts that policyholders pay to keep their coverage.

Death Benefit: This is the amount paid to the beneficiary of an insurance policy after the policyholder’s death.

Living Benefits: These are benefits that a policyholder can use while they are alive. The most common example is a cash-value account. However, insurance riders, such as disability cover or AD&D cover, are also considered living benefits.

Cash value account: This is a type of saving account that policyholders with permanent life insurance can use to build up additional wealth through their policy.

Insurance Riders: An insurance rider adds benefits to an insurance policy or extends its coverage. They are customized to fit the policyholder's needs. The insured pays an extra premium for riders.

Advantages and Disadvantages of Group Life Insurance

Group life insurance may seem straightforward. There are, however, a few factors that set it apart from other types of life cover such as term and permanent insurance.

Advantages of Group Life Insurance

  • Qualifying is simple. As opposed to individual term policies that take into account a person's age, gender, family history, and overall health, group policies offer guaranteed coverage. As a result, the risk is not measured individually but is based on the group as a whole, including the proportion of male and female applicants, the nature of the job, and the age range of applicants. The premium is then set based on the whole group's risk profile.

  • It’s convenient. When you purchase a group policy through your workplace, you'll be able to enroll without having to do any research of your own. You will also usually have a much shorter application process than applying on your own.

  • It’s affordable. Since risk is determined by an entire group of people, the monthly payments tend to be lower, particularly if you are applying late in life, in poor health, or pregnant.

A group of employees that have Group Life Insurance coverage as an employment benefit.

Source: Pexels

Disadvantages of Group Life Insurance

  • Coverage can be limited: Many companies want to offer competitive benefits while saving as much money as they can. This means that group life insurance for employees might not be comprehensive.

  • It's usually temporary: Your employer might stop offering group life cover at any time. This is why it is generally recommended to consider group term life insurance as a supplement to individual life insurance.

  • Lower death benefits: Most people settle for having 1-2 times their salary as group life cover benefit and the death benefit is usually a lot less than an individual term life policy payout. This may not be enough to sustain their beneficiaries if something were to happen.

  • Premiums can go up: In contrast to a term life insurance policy where your rate is locked in for a specific period of time, the cost of group term life insurance rates could rise with age.

How Does Group Life Insurance Work?

Aside from coverage restrictions, a group life insurance policy works the same way as individual term life insurance:

  • A monthly or annual payment keeps the policy active

  • The policy expires after a set period of time (for group life, the policy is usually renewed every year)

  • When a person dies, the death benefit is paid to the beneficiary

In most cases, leaving an employer will result in losing your group life coverage. In some cases, you are able to take your group life coverage when you leave your company, which is called life insurance portability. If you are able to keep the coverage, it's usually more expensive to keep it than purchasing a new policy.

An insurance agent explaining to her customers how Group Life Insurance works.

Source: Pexels

What Is the Cost of Group Life Insurance and Will I Pay Tax on It?

Group life insurance premiums vary depending on the company or organization managing the policy. 

Depending on the type of policy your company has, you may be required to contribute some money to your premiums, or the company may cover the entire cost.

For example, your company may cover the entire cost of your group cover and add it in as an employee benefit, or they might offer to contribute half of the costs. For example, in 2021, IBM offered their employees' group life cover equal to one year’s pay and capped at $1 million. 

This coverage is paid for by the company and employees are only responsible for tax costs if they decide to get coverage over $50,000.

Group Life Insurance and Taxes

If your group life cover is over $50,000, you have to pay taxes. Any premiums you get from your employer are considered part of your income, which is taxable as an employee benefit.

If you’d like to learn more about setting up a group life insurance plan for your company, reach out to us to find the best providers in your state.

A man researching the cost he'll pay for Group Life Insurance.

Source: Pexels

How to Get Group Life Insurance

Depending on your employer, there are generally some conditions associated with group life insurance policies. 

You may have the option of purchasing additional life insurance coverage, which is also known as supplemental life insurance.

Keep these points in mind:

  •  A group life plan offered by your employer is usually available at the beginning of your employment. 

  • Many organizations, however, require staff members to be employed for a certain period of time before they're covered. 

For example, employees may have to complete a probation or waiting period before they are approved for life insurance.

  • Unlike most other life insurance policies, group life insurance policies rarely depend on health or age. There is no need for you to go through the underwriting process to get coverage.

What Is Underwriting?

Underwriting is a risk assessment done by insurance companies to determine the probability of a person dying prematurely.

Insurance companies will look at a number of factors, such as age, health, and driving history before they accept an application.

  • If you don't sign up for group life insurance immediately, you'll only be able to do so in the open registration period or after a significant life event, such as getting married.

  • Group coverage is normally only valid for the duration of the staff member's employment; however, some policies are transferable. The coverage ends upon resignation or termination.

  • Premium amounts and coverage types vary depending on the employer. You might be able to choose an AD&D policy or other insurance riders to customize your coverage. 

  • In some cases, you may be able to increase your group life insurance death benefit. You then, however, may be required to fill out a Proof of Insurability (POI) form, which may also include a medical questionnaire. 

  • An insurer may decline your application if you have health problems or cannot prove a financial need for supplemental insurance.

A man signing up for Group Life Insurance.

Source: Pexels

Where Can I Learn More About Life Insurance?

If you’re interested in learning more about your life insurance options, visit our life insurance hub and read our latest articles on term life insurance, universal life insurance, and final expense life insurance.

We cover a range of topics that will help you understand life cover and choose a top provider.

If you need personalized assistance, reach out to one of our experienced consultants who will be able to help you find providers and plans in your area. Call us today on 1-888-912-2132 or send an email to help@policyscout.com to get started.