Does your employer offer group life insurance? If so, it’s worth taking time to explore how it works and what your options are.
Updated:
Apr 13, 2024
Written by
Kristin Peters
Kristin Peters
Edited by
Tori Addison
Tori Addison
Reviewed by
Mark Friedlander
Mark Friedlander
Insurance Information Institute
Many employers provide a small amount of free life insurance as part of their benefits package, with the option for employees to purchase additional coverage at their own expense. But what is group life insurance, and how does it differ from other types of life insurance? What coverage does it provide, and do you need more?
Whether you are starting a new job or completing your annual enrollment paperwork, we at the Guides Home Team are here to help. We did a deep dive into group life insurance and compiled all the information we gathered into this helpful guide. Below, you’ll learn how group life insurance works, how to increase the coverage and what happens when you leave your job.
Group Life Insurance Explained
Group life insurance is a type of term life insurance plan purchased by an employer or organization to cover an entire group of people. Often, this insurance is offered as an employment benefit or membership perk at little or no cost to insured individuals. When you opt into a group life insurance policy, you will need to fill out paperwork and designate one or more beneficiaries. However, your employer or organization will be the policyholder.
Although group life insurance is most commonly offered by employers, you may qualify for a policy through your membership in a professional organization or even a credit union. Because your policy will typically expire when you sever ties with the organization, group life insurance falls into the category of term life insurance rather than permanent life insurance.
Coverage
A basic employee group life insurance package typically provides $10,000–$50,000 worth of coverage. However, your employer may calculate the amount based on your earnings, providing coverage that is worth one or two times your annual salary.
Many employer-sponsored life insurance policies also include an accidental death and dismemberment (AD&D) rider at no charge to the employee. AD&D policies pay out when the insured suffers an accident that causes death or permanent injury, such as blindness or paralysis.
With group life insurance, coverage is guaranteed. However, your employer may only offer this benefit to full-time employees or those who work a minimum number of hours per week. Regardless, you will not have to undergo a medical exam to qualify.
In most cases, a group life policy only lasts as long as you are employed or part of an organization that offers coverage. That means your coverage will likely expire if any of the following happens:
- You voluntarily quit your job or leave for a new job
- You are involuntarily terminated
- You withdraw or cancel your organization membership
- Your organization severs ties with you
- You stop paying dues or are not a member in good standing
When you retire, you may or may not be able to keep your coverage. Some companies will allow you to convert your group term life insurance to an individual policy when you retire. However, employers typically will not cover your premiums after that point.
Because coverage can expire, group life insurance falls into the category of term life insurance rather than permanent life insurance. Most are one-year policies that are renewable on an annual basis and have no cash value. However, there are exceptions. Some organizations might offer group universal or variable universal life insurance that accrues a cash value. Others may offer insurance that lasts for a fixed number of years, such as a 30-year term life policy, instead of renewing annually.
Cost
Most organizations often offer two coverage options: basic and supplemental.
Typically, your employer will cover the premiums for a predetermined amount of basic coverage. The IRS allows employers to provide up to $50,000 of coverage tax-free, which means neither your insurance premiums nor the death benefit will be subject to income tax. If your employer offers more than $50,000 of basic group life insurance, the excess will be reported on your W-2, and you will pay taxes on the premiums as imputed income.
If you want more than the basic amount provided by your employer, you can apply for supplemental coverage if it is offered. The premiums for this coverage will be paid via an automatic payroll deduction. Supplemental coverage up to a certain amount is typically guaranteed, but higher amounts may be subject to an underwriting process that could include health questions, a medical records request and/or a medical exam.
Affordability is the biggest selling point for group life insurance. Basic employer-paid coverage is free up to $50,000, and for higher amounts, you only pay taxes on the premiums. Supplemental coverage is not free but typically costs less than an individual policy. However, your premiums will likely increase as you age. Most insurance companies provide tiered pricing that increases with age, often at five-year intervals.
Pros and Cons of Group Life Insurance
Although group life insurance can be a valuable employee benefit, it may not provide sufficient coverage on its own. Here are some pros and cons to consider:
Adding Supplemental Life Insurance to Your Group Policy
Experts recommend having life insurance with a death benefit equal to at least 10 times your salary. Most employers will not pay for that much basic coverage — but that’s where supplemental life insurance comes in. You can increase your overall death benefit by purchasing supplemental coverage if it is offered by your employer or organization.
Who Should Buy Supplemental Life Insurance?
As you consider whether to buy supplemental life insurance, take the time to calculate your coverage needs. In addition to your income, you may want to factor in your mortgage, any other outstanding debt and college expenses.
If your employer’s basic coverage falls short of the amount you need, supplemental life insurance can be an affordable way to make up the difference. Unlike other insurance policies, supplemental life insurance generally does not take into account your lifestyle, health or medical history. As a result, premiums may be significantly lower than they would be for a comparable individual policy.
How to Buy Supplemental Life Insurance
You can buy supplemental life insurance through your employer to take advantage of the lower rates and easy application process inherent to group life insurance. During your company’s open enrollment period, review your options and make adjustments to ensure your family members will be well provided for. Alternatively, you can increase your overall coverage by applying for an individual life insurance policy.
Purchasing supplemental insurance directly through a provider may cost more, and you will be subject to an underwriting process. However, you will have more options. You can compare life insurance quotes from multiple companies and choose between different policy types, including whole life insurance. Whether you choose a permanent or term life insurance policy, your coverage will no longer be tied to your employment or membership status.
Group Life Insurance and Switching Jobs
When you leave your current employer, your group life insurance coverage will likely be terminated, regardless of whether your termination is voluntary or involuntary. The life insurance company may allow you to convert your coverage to an individual life insurance policy. In the case of retirement, your employer may even agree to pay part of the premiums. However, this scenario is uncommon.
It is far more likely that your group life insurance plan will not be portable or convertible. If it is, you will almost certainly be responsible for paying the full premiums.
Our Conclusion About Group Life Insurance
Group life insurance has become an increasingly common benefit offered by employers. It may also be offered to members of a professional organization, group or club. In any case, group life insurance provides affordable coverage that is guaranteed and tax-free up to a certain amount.
Basic coverage through a group life insurance policy may be limited. If your employer or organization does not provide adequate coverage, consider adding supplemental life insurance to ensure your loved ones receive the amount they need.
Frequently Asked Questions About Group Life Insurance
The purpose of group life insurance is to provide financial support to the family of an employee or member who dies while part of a company or organization. Employers typically cover the cost of this insurance, though employees can choose to opt in or out of coverage.
With most life insurance policies, the policyholder and the insured are the same person — the policy covers you, and you own it. Group life insurance is a little different. Though the policy covers you and you name the beneficiaries, you are not the policy owner. Instead, your employer or organization owns the policy. Group life insurance is easier to obtain than an individual life insurance policy, with no medical exam required, and generally costs you (the employee or member) nothing.
Yes — but only if the insured is still employed by or a member of the sponsoring organization when they die. Group life insurance expires when you quit, change jobs, get fired or stop paying dues. It also typically expires when you retire. Note that group life insurance policies typically have a low death benefit compared to individual policies.
Since there is typically no health questionnaire or medical exam when you apply for a group plan offered by your employer or organization, having COVID-19 or long COVID symptoms should have no impact on your eligibility. However, if you purchase supplemental coverage, you may be subject to medical underwriting and would be charged a higher premium if you have present COVID symptoms.
