Understanding Group Life Insurance for Groups

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Definition:

Group life insurance is a type of life insurance that covers all members of a specific group, such as all employees of a particular company. Employers offer group life insurance as part of a benefits package for employees.

What is group life insurance?

Group life insurance is life insurance that you receive as part of your workplace benefits package or through another group such as a labor union or professional organization.

Note: Term life insurance provides basic death protection for a limited period, typically ranging from one to 30 years. In contrast, whole life insurance is permanent coverage that lasts for your entire life and can accumulate cash value over time.

Group life insurance is usually cheaper than individual insurance since part of the cost is covered by the employer. Some employers even pay the entire premium, providing this benefit at no cost to employees.

There may be requirements to join group life insurance, such as working a certain number of hours per week or having a minimum length of service.

An employer can provide up to $50,000 of life insurance to an employee as an ancillary benefit without a tax impact. However, if the employer provides a larger amount, the beneficiaries must claim the benefit amount as part of the insured’s wages and pay income taxes on the amount exceeding the allowed limit.

How does group life insurance work?

Group life insurance covers a group of people under one insurance policy. This means it cannot be tailored to your specific needs. It is common for the base policy to have a death benefit equal to your annual salary or twice that amount, or to have the benefit be a fixed amount for everyone in the group, such as $100,000. Some employers allow you the option to enroll in additional coverage.

Note: With some group life insurance policies, you may be able to purchase coverage for your spouse and children. Check with your insurance plan administrator to see what options are available to you.

To enroll for coverage, read the insurance application carefully. Most basic group insurance policies do not require a medical exam, but some may require it.

Once coverage is approved, you will need to pay the monthly premium unless your employer covers it entirely. Then, if something happens to you and you pass away while insured, the beneficiary will receive the death benefit.

Be sure to review your insurance coverage and beneficiaries regularly. This way, you will know that your insurance money will go to the right person upon your death.

Note: Most group life insurance policies end when you stop working at the company. However, some companies allow you to take your coverage with you by “porting” your term policy or converting it to a permanent policy. The advantage of this is that you do not need to reapply for new coverage or undergo a medical exam. However, if you cannot convert to a permanent policy, premiums will increase over time.

Advantages and disadvantages of group life insurance

Group life insurance can provide life insurance at a lower cost than individual insurance, but like any other financial product, the advantages and disadvantages should be considered.

Advantages:

• It is typically cheaper than individual insurance.
• It usually does not require a medical exam.
• Employers may cover the premium costs.

Disadvantages:

• The amount of coverage is often limited.
• It may end when you leave your job.

Advantages explained:

• The costs of group life insurance are generally lower than those of individual insurance. It can be an economical way to obtain life insurance.
• Generally
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• Group life insurance documents typically do not require any medical examination. Instead, in most cases, each member can join regardless of their health history.
• Some employers may choose to pay the entire premium for their employees. While others cover part of the monthly payment, helping to reduce the amount due.

Outlined disadvantages:

• Group life insurance usually offers a lower insured amount than what you could get with an individual policy. Depending on the amount of life insurance you need, it might be wise to also purchase an individual policy.
• Since coverage is provided through the employer, insurance may end when you leave your job. However, you may have the option to convert it to a permanent policy or take it with you as a renewable term policy. In the latter case, premiums will increase each time the policy is renewed, so it may be better to look for new coverage.

Conclusion

Group life insurance is a type of coverage that provides a death benefit if the insured person passes away while the policy is in force. Because it is relatively inexpensive, it can be a good way to obtain life insurance for a limited period. However, it may not be sufficient to meet your financial needs if you require more coverage or if you wish to keep the coverage in force until your death.

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Sources:

• Northwestern Mutual. “Group Term Life Insurance.” Accessed Feb. 1, 2022.
• Legal Information Institute. “Group-Term Life Insurance.” Accessed Feb. 1, 2022.
• Minnesota Commerce Department. “Term vs. Permanent Life Insurance.” Accessed Feb. 1, 2022.
• IRS. “Group-Term Life Insurance.” Accessed Feb. 1, 2022.
• Texas Department of Insurance. “Life Insurance Guide.” Accessed Feb. 1. 2022.
• Ohio National. “Group Life Insurance vs. Individual Life Insurance.” Accessed Feb. 1, 2022.
• Unum. “Group Life Insurance Policies and Coverage.” Accessed Feb. 1, 2022.
• Texas Department of Insurance. “Life Insurance Guide.” Accessed Feb. 1, 2022.

Source: https://www.thebalancemoney.com/understanding-group-term-life-insurance-5217814