Group Life Insurance: A Complete Guide

Offering various employee benefits is a great way to not only attract new workers but also retain the ones you already have. Many different kinds of insurance can be offered to employees as an extra incentive to sign on and remain with your company over time. A group life insurance policy can be seen as a major perk by many employees who couldn't otherwise afford this coverage. 

A local independent insurance agent can help you find group life insurance for your business. They'll get you matched to the coverage that makes the most sense for your unique company. Until then, here's a complete guide to group life insurance, what it covers, and more.

Navigation

• What Is Group Life Insurance?
• How Does Group Life Insurance Work? 
• What Does Group Life Insurance Cover?
• How Much Does Group Life Insurance Cost?
• Requirements for Group Life Insurance
• Advantages and Disadvantages of Group Life Insurance
• What Is the Purpose of Group Life Insurance?
• What Happens to Group Life Insurance Coverage After You Retire or Switch Jobs?
• What Are the Types of Group Life Insurance?

What Is Group Life Insurance?

Group life insurance offers a single policy contract for life insurance that covers an entire group of people, such as a business's employees. Typically, an employer will negotiate the policy for its employees. Should an employee pass away, their beneficiaries can receive death benefit payouts. Many businesses offer term life insurance as a group policy.

Since businesses purchase this coverage on a wholesale basis, coverage premiums are much cheaper for employees than if they bought an individual policy on their own. Further, employees sometimes don't have to make any out-of-pocket payments for their policy's benefits. Employees can often choose to deduct their portion of the policy's premiums directly from their paychecks for extra convenience. 

How Does Group Life Insurance Work?

Group life insurance works as a single master policy that offers benefits to any employees of an insured company who opt in. If an employee passes away while working for this employer, their chosen beneficiary, which is typically a spouse or dependent, receives the agreed death benefit payout. 

When a business buys a life insurance policy for its staff, it retains the master contract for the coverage. Employees who opt into their employer's group life insurance plan are given certificates of coverage that they will need to present to a subsequent insurance company if they leave their current employer and cancel their policy.

What Does Group Life Insurance Cover?

Group life insurance policies often provide coverage for between $10,000 and $50,000 per employee. In certain cases, businesses calculate the amount of coverage an employee receives by factoring in their earnings. 

An employee may be eligible to receive group life insurance coverage that amounts to one or two times their annual salary. Group life insurance guarantees coverage (i.e., no medical exam is required), but businesses can choose who they allow to participate in the group plan. For example, a business might only offer group life insurance to full-time employees.

These life insurance policies provide the same coverage as other life insurance policies by offering death benefit payouts to designated beneficiaries when the insured individual dies. 

In addition, many businesses have group life insurance plans that also include accidental death and dismemberment riders, which offer death benefit payouts if the insured employee is involved in an accident that results in a severe, permanent injury or death.

How Much Does Group Life Insurance Cost?

In many cases, group life insurance is free for employees. Policies that include up to $50,000 in coverage are allowed to be tax-free, as determined by the IRS. These policies offer the benefit of tax-free death benefits and insurance premiums. 

However, if a group life insurance plan offers more than $50,000 in coverage for any insured employees, the excess amount gets reported on their W-2s. These employees then have to pay taxes on this excess coverage.

The amount an employee has to pay for supplemental, additional coverage beyond the basic life insurance provided by their employer varies depending on the type of business they work for, the insurance carrier, and their age. 

A sample employee is a 40-year-old who works for Amazon full-time. This individual might pay $0.059 for every additional $1,000 in life insurance coverage. This means that if they purchased an additional $100,000 of coverage, they'd pay $5.90 in monthly premiums.

Requirements for Group Life Insurance

Many group life insurance policies come with qualification requirements. In certain cases, employees must have been employed with the company for a specified period of time before they're eligible to start receiving group life insurance benefits. 

Further, an employee's life insurance benefits are typically only active as long as they're still employed by that company. Group life insurance can be canceled in any of the following cases:

• An employee is fired
• An employee quits
• An employee leaves the company for a new job
• The insured business severs ties with the employee

Businesses should be sure to inform any insured employees under the group life insurance plan of the requirements to remain insured. 

Advantages and Disadvantages of Group Life Insurance

It's helpful to consider the possible advantages and drawbacks of group life insurance when your business is shopping for a policy. Some of the major benefits and drawbacks of group life insurance are as follows:

Pros:	Cons:
Coverage is much more affordable than individual life insurance policies	Total coverage might be limited
Coverage is guaranteed with no medical exam	Relatively low death benefits offered
Coverage is often free or inexpensive for insured employees	Coverage expires if an employee leaves the company for any reason
Premiums are often covered by the employer or deducted from a paycheck	Policies typically have no cash value
Insured employees might have the option to add coverage for dependents	The company is in control of the policy and its terms

As a responsible employer, be sure to explain the benefits and drawbacks to any employees who are interested in opting into your organization's group health insurance plan before they sign up.

What Is the Purpose of Group Life Insurance?

Group life insurance provides free or highly affordable life insurance for qualifying employees. This coverage provides a death benefit payout to the insured employee's chosen beneficiaries if they die while still employed by the business. The purpose of group life insurance is to offer affordable life insurance coverage for its employees as a major perk or benefit for signing on with them and staying with them over time.

What Happens to Group Life Insurance Coverage After You Retire or Switch Jobs?

If an insured individual leaves the business, their group life insurance coverage is terminated. Sometimes coverage is immediately terminated, but in some cases, a short grace period is offered in which the individual remains insured long enough to find a new policy or job. 

Regardless of whether the insured individual gets fired, voluntarily quits their job, switches to a different employer, or retires, group life coverage ends once they leave. 

In certain instances, an individual might have the option to convert their group life coverage into an individual life insurance policy if they retire. However, the employer likely won't continue to cover their premiums.

What Are the Types of Group Life Insurance?

Group term life insurance is the most common type of group life policy. This coverage renews annually and provides death benefits only. Group term coverage is the least expensive option of all types of group life insurance. 

Another common type of group life coverage is group universal life insurance. This type of coverage is more expensive but offers additional benefits. With universal life insurance, the policy builds cash value over time in addition to offering a death benefit. 

Variable group universal life insurance is another option. This type of coverage provides an investment option on top of its other benefits. The investment option can increase the potential returns of the policy's cash value portion.

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The Benefits of an Independent Insurance Agent

Independent insurance agents are one of the best resources when finding the right group life insurance plan for your business. They work with a range of insurance companies to present you with the best blend of coverage and cost for your business and employees. And down the road, your agent can help you file life insurance claims or update your coverage as necessary.