Learn more about how employers offer this type of life insurance policy, how it compares to other types of policies, and whether it’s right for your needs.
What Is Group Term Life Insurance?
Group term life insurance is life insurance that you get as part of your benefits package at work or through some other group such as a labor union or professional organization. Group term life insurance is typically less expensive than an individual policy as the employer pays a portion. Some employers even pay the premium, providing this benefit free of charge to their workers. There may be requirements for you to join group term life coverage, such as working a certain number of hours per week or being employed for a minimum length of time. An employer can provide up to $50,000 of life insurance for an employee as a fringe benefit without a tax implication. But if the employer provides more than that, beneficiaries must claim the death benefit as part of the insured’s wages and pay income taxes on the amount over the limit.
How Does Group Term Life Insurance Work?
Group life insurance covers a group of people on one insurance policy. This means it’s not customizable to your specific needs. It’s not uncommon for a basic policy to have a death benefit that is equal to about one or two times your yearly salary, or for the benefit to be a set amount for everyone in the group, such as $100,000. Some employers give you the option of signing up for additional insurance. To sign up for coverage, read your application carefully. Most basic group term life insurance contracts don’t require a medical exam, but some policies might require it. Once approved for coverage, you’ll need to pay your monthly premium unless your employer covers it all. Then, if something happens to you and you pass away while you’re ensured, your beneficiary gets the death benefit. Make sure you review your insurance coverage and beneficiary regularly. This way, you know your insurance money will go to the right person when you die.
Pros and Cons of Group Term Life Insurance
Group life term insurance can offer a more affordable term life insurance policy than you may get on your own, but, as with any financial product, consider the pros and cons.
Pros Explained
Typically less expensive: Group term life insurance rates are typically less than you’d pay for an individual policy. It can be a low-cost way to get life insurance. Generally doesn’t require a medical exam: Many term policies don’t require any medical screening. Instead, in most cases, every member can join regardless of their health history.Employers may cover the premium: Some employers choose to pay all the premium for their employees. Others cover part of the monthly payment, which helps to lower what you owe.
Cons Explained
Often limited amount of coverage: Group term life insurance typically doesn’t provide as large of a death benefit as you can get on your own. Depending on how much life insurance you need, it might be wise to purchase an individual plan as well. May end when you leave your job: Since your coverage is provided through your employer, your life insurance policy may terminate when you leave. However, you may have the option to convert it to a permanent policy or to take it with you as a renewable term policy. In the latter case, your premiums will increase each time the policy renews, so it could be more affordable to seek new coverage.
The Bottom Line
Group term life insurance is a type of coverage that provides a death benefit if the insured individual dies while the policy is in place. Since it’s fairly inexpensive, it can be a good way to get life insurance for a specific time period. But, it might not be enough to meet your financial needs if you need more coverage or if you want coverage to remain in effect until your death.
