Group Life Insurance: What It Is And How It Works

Shawn Plummer

CEO, The Annuity Expert

What is Group Life Insurance?

Group life insurance is a type of life insurance policy purchased by an employer or organization, providing coverage to a group of people, typically employees or members of the organization. This insurance offers financial protection to the beneficiaries of the group members in case of a member’s death.

How Does Group Life Insurance Work?

Group life insurance works by covering all eligible members under one master policy. The employer or organization is the policyholder, and the employees or members are the insured individuals. In the event of a member’s death, the policy pays out a death benefit to the designated beneficiaries. The coverage is often a part of the employee’s benefits package, and the premiums are usually less expensive compared to individual life insurance policies.

Group Life Insurance

Benefits of Group Life Insurance for Small Businesses

  1. Attract and Retain Employees: Offering group life insurance can make a small business more attractive to current and potential employees.
  2. Tax Benefits: Premiums paid by the employer are generally tax-deductible.
  3. Ease of Management: Group policies are easier to manage than individual policies.
  4. Inclusive Coverage: Employees can receive coverage regardless of their health condition.

Comparison of Group vs. Individual Life Insurance

FactorGroup Life InsuranceIndividual Life Insurance
CostGenerally lower premiumsHigher premiums
CoverageBased on employmentPersonal choice
Policy OwnershipEmployer or organizationIndividual
PortabilityNot portable (ends with employment)Portable (stays with individual)
Health ExaminationUsually not requiredOften required
What Is Group Life Insurance


Group life insurance is a beneficial option for small businesses looking to offer additional benefits to their employees. It provides financial security to employees’ families at a lower cost and with easier management for the employer. Understanding how it works and its advantages can help small business owners make informed decisions about their employee benefits packages.

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Frequently Asked Questions

Does group life insurance follow me when I retire?

Group life insurance generally does not follow you into retirement. It’s typically tied to your employment, meaning coverage usually ends when you retire or leave. However, some policies allow conversion to individual life insurance. It’s crucial to check the terms of your specific policy and consider additional coverage for retirement.

How does group term life insurance work?

Group term life insurance is a policy provided by an employer to its employees. It offers coverage for a certain period, typically one year. The employer pays the premiums; the coverage amount is based on the employee’s salary. If an employee passes away during the coverage period, their beneficiaries receive the death benefit. However, once the employee leaves the company, the coverage usually ends.

Can I cash out my group life insurance policy?

That’s correct. If you want to cash out your life insurance policy, the money you receive will depend on the policy’s cash value. For example, if your policy has a cash value of $10,000, you can withdraw up to that amount (minus any applicable surrender fees).

What is the purpose of group life insurance?

Group life insurance is meant to offer monetary assistance to the family of an employee or member who passes away while associated with a company or organization. Usually, employers pay for this insurance, yet employees have the option to decide if they want to enroll or not.

Do employees pay for group life insurance?

The employer either fully covers the cost of the life insurance or facilitates the premium payments, with some employees subsidizing others under the “straddle” rule.

Who is the beneficiary of a group life insurance?

The beneficiary is the individual or organization you name as the recipient of the advantages of your financial products. In the case of life insurance, it refers to the payout that your policy will provide to your beneficiary when you die. For retirement or investment accounts, it applies to the total value of your assets.

What are the two types of group life insurance policies?

Group life insurance is a benefit provided by employers that pay a certain amount of money to a beneficiary if the employee passes away. There are two types: contributory and non-contributory, and the coverage amount can be the same or different for each type.

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Shawn Plummer

CEO, The Annuity Expert

Shawn Plummer is a licensed financial professional, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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