Group Term Life Insurance: What It Is, How It Works

Group Term Life Insurance What It Is, How It Works

What Is Group Term Life Insurance?

Group Term Life Insurance is a form of term insurance that covers multiple individuals under a single contract. Typically, this is offered by an employer to its employees as a benefit. Employers often provide a basic level of coverage for free, along with the option for employees to buy additional coverage for themselves, their spouses, and children.

Comparatively speaking, group term life insurance is less expensive than individual life insurance. Participation is high as a result.


  • As part of a benefits package, many firms provide fundamental group term life insurance to employees at no charge.
  • Having both a group term life insurance policy and an individual life insurance policy at the same time is feasible and might even be wise.
  • You might be able to change a group term life insurance policy to an individual life insurance policy when you quit a job. However, this choice is prohibitively expensive for many.

How Group Term Life Insurance Works

According to the Society for Human Resource Management, about 80% of businesses provide group life insurance that is paid for by the employer as a benefit.

Employees who satisfy the qualifying conditions, such as being a permanent employee or being hired within 30 days, are frequently offered group life insurance plans, which are typically written as term insurance. During an open enrollment period or in response to certain qualifying life events, group term life insurance coverage may be changed.

The typical level of coverage is often equal to the annual pay of the insured employee. Most of the time, employers cover all of the costs of basic insurance. Additional sums are typically offered in multiples of the employee’s annual income for an additional premium that the employee must pay.

Members who are insured receive insurance certificates as evidence of their protection. Similar to individual life insurance, beneficiaries are selected by the parties who are insured.

Benefits and drawbacks of group term life insurance

For the most part, group term insurance is affordable, especially for young people, and because all eligible employees are automatically insured, participants may not be subject to underwriting. However, most group plans feature rate bands where the cost of insurance automatically increases in increments, for instance at ages 30, 35, 40, etc., as opposed to individual term insurance plans, which normally lock in a rate for 20 to 30 years. The plan document specifies the premiums for each rate band.

Despite being affordable, group life insurance often does not provide enough coverage and should be supplemented with an individual plan. The amount of available coverage varies by group, but employers or association groups providing the insurance frequently limit the total coverage available to employees or members based on factors like tenure, base salary, the number of dependents, and employment statuses like full-time, associate, or executive. Employers most frequently provide multiples of an employee’s salary or fixed sums, like $20,000 or $50,000. Many group insurance policies just pay the employee’s base wage. Bonuses, commissions, reimbursements, and incentives that are reported as income, such as vehicle reimbursements and restricted stock awards, may also be excluded from the definition of compensation.

Term Life Insurance: What It Is, Different Types, Pros and Cons

Group insurance should also be viewed as supplemental because it depends on employment. When a person’s work ends, their coverage automatically expires, and getting individual insurance may then be more difficult or expensive. The option to convert a group term policy into an individual permanent policy is provided by several insurers. The conversion possibilities can vary, they might not be automated, and underwriting can be necessary. As a result, a person might be evaluated and given a policy with a substantially higher premium. Additionally, the conversion policies may not always be the most competitive items and may be restricted.

Group Term Life Insurance Requirements

Normally, as soon as an employee meets the qualifying standards, they are automatically enrolled in the base coverage. The requirements can include working a specific number of hours per week or a specific period of time as an employee, among other things. The accessibility of additional group term insurance varies. Some plans restrict enrollment to those who are first employed or those who experience a qualifying life event, such the birth of a child. In other plans, open enrollment times can be used to add additional group term insurance.

Underwriting can be necessary for supplemental coverage. Instead of needing to undergo a physical exam, the insurance applicant typically answers a few questions to determine eligibility as part of a streamlined underwriting procedure. The insurer then chooses whether or not to provide the extra coverage.

Particular Considerations

Employees may receive a benefit of $50,000 in tax-free group term life insurance from their employers. Any coverage provided by an employer that costs more than $50,000 must be disclosed on the employee’s W-2 as a taxable benefit.

The first $50,000 of coverage may turn into a taxable benefit for some employees, such as corporate officers, highly compensated individuals, or owners with a 5% or greater stake in the company, if an employer does differentiate, which is permitted, by providing different amounts of coverage to certain groups of employees.

Even if a term policy is the best option for your current situation, it’s important to compare your employer’s plan with those of other companies to be sure you’re getting the finest term life insurance coverage available. Additionally, it’s crucial to confirm that the coverage you choose during open enrollment still satisfies your needs.


Please enter your comment!
Please enter your name here