Group Life Insurance: What It Is And How It Works

Shawn Plummer

CEO, The Annuity Expert

Group life insurance is a policy that provides coverage for a group of people, which employers usually offer to their employees. It can also be obtained through membership in certain organizations. In this guide, we will discuss what group life insurance is, how it works, and some advantages of having this type of policy.

What are Group Life Insurance Policies?

Group life insurance policies are a type of life insurance that covers an entire group of people under one contract. Typically, the policy owner is an employer or organization, and the policy covers employees or members of the group. Group life provides coverage for death benefits to eligible members and beneficiaries in the event of their death. Some life insurance policies have additional features, like accelerated death benefit riders.

This allows the policyholder to access part of the death benefit while they’re still alive. Group life usually has lower premiums because it’s negotiated with a whole group instead of just one person. Because of this, it’s an affordable way for employers to provide their employees with life insurance coverage.

How Does Group Life Insurance Work?

Group policies work similarly to individual policies in combining an insurance policy with a savings plan. It is designed to provide financial security to members of a certain group, such as employees of an organization or members of a union. Generally, employers offer group life insurance as part of their employee benefits package, which could include an accidental death benefit.

Why Should I Get Group Life Insurance?

If you qualify for group life insurance through your employer, it usually makes sense to sign up. Group life offers protection against potential financial burdens for yourself and your family, and it can be particularly cost-effective based on the amount of coverage you receive.

You may also consider purchasing additional life insurance if you need more than your employer offers. Purchasing a life insurance policy is an important decision, and having the right amount of coverage can greatly reduce the burden on your loved ones in the event of your death to provide death benefits.

What is the Difference Between Life Insurance and Group Life Insurance?

Group life insurance does not follow you if you resign or get fired from your company. If employment is terminated, so is the insurance. With an individual policy, however, YOU are the owner of that policy. You can take it with you and keep it no matter what changes in your employment status occur.

Compared to whole life insurance, group life insurance has more restricted benefits. An employer might only pay out a specific amount in the event of the policyholder’s death, and the duration of coverage may be limited. With an individual policy, you have greater control over coverage details and how much money to insure.

Finally, an individual life insurance policy has added benefits from a group policy and allows you to choose from different policies. This includes whole life, term life, and universal life policies.

What is a Major Benefit of Group Life Insurance?

Group life insurance is a type of insurance that pays money to the family of someone who dies while working for an organization. This type of insurance is important because it can help support a family financially if something happens to the working person.

Employers usually offer group life policies as part of a comprehensive benefits package and can provide peace of mind to the insured and their families. Group life policies typically have more flexibility than individual policies, which means that employees can customize their coverage according to their family situation or lifestyle.

In addition, group life premiums tend to be lower than those of individual policies, making it an affordable option for many employers. Group life policies also often provide benefits such as disability income protection and accidental death and dismemberment coverage. Employers who offer group life policies can also benefit from having a more stable workforce by providing added financial security to their employees.

Who Pays the Group Life Insurance Premium?

The employer pays for the entire cost of the group policy, or if the employer arranges the premium payments, at least one employee’s premiums must be subsidized by another employee’s payment(s) (the “straddle” rule).

If an employee wants more coverage, they have to buy it themselves. An employer’s life insurance usually stops when the employee leaves their job. Employers don’t need to provide this benefit, but if they choose to, the Employee Retirement Income Security Act (ERISA) must be followed.

Who is the Beneficiary of a Group Life Insurance Policy?

Your beneficiary is the person or entity you legally designate to receive your financial benefits. For example, if you die, your life insurance your beneficiary the death benefit. Similarly, retirement or investment accounts would receive any leftover assets in those accounts upon your passing. Consequently, It is very important to choose wisely as this decision will have significant implications.

It’s crucial to visit and update your beneficiaries every so often, as life circumstances are always changing. You want to ensure that the chosen person or entity is still entitled to receive the benefits and check that the amount designated is still accurate.

Understanding how your beneficiary designation works with the other parts of your estate plan is crucial. If unsure how to best structure your beneficiary designations, speak with a lawyer or financial advisor for guidance.

Do Group Life Insurance Policies Pay Benefits?

Pure life insurance doesn’t have a cash value component like whole life does- it’s designed to give your chosen beneficiaries a payout if you pass away during the policy term.

Term life insurance provides coverage for a set amount of time, which can be 1 year to 30 years. Term life insurance is less expensive than permanent life insurance because there’s no investment component tied up in the policy like with whole or universal life insurance. The price you pay for term life insurance depends on various things, such as your age and health.

Many employers provide employees with two kinds of group term life: basic and supplemental.

What is the Difference Between Basic and Supplemental Life Insurance?

You can get basic life insurance coverage that covers one or two times your annual salary. Your employer usually pays the monthly premiums for these kinds of policies. If you want a policy with higher coverage limits, you can get a supplemental life insurance policy. But remember that you will probably have to pay monthly fees for this type of policy.

There are three main types of life insurance: term, permanent, and group. It’s essential that you understand the distinctions between them before buying a policy.

  • Term life insurance is cheaper but doesn’t allow the policyholder to accrue cash value or be insured for their entire lifetime.
  • Whole life insurance policies are more expensive, though they offer benefits like cash value growth and living benefits that can help with retirement.
  • Group coverage, which employers often offer, covers all employees equally but has limited coverage levels.

What Happens to Group Life Insurance When You Retire?

If you have group life insurance through your employer, coverage will no longer apply to you once you retire. In simpler terms, your employer’s life insurance plans are moot if you don’t need the policy anymore. Although in some cases, employers offer their retired employees the ability to convert their preexisting coverage into an individual plan.

If you have the option, converting your life insurance policy through your employer is a great way to provide peace of mind for your loved ones. If this isn’t an available option for you, don’t worry – there are other basic life insurance policies that can provide life insurance benefits that can be just as effective.

How Do I Get Group Life Insurance?

Group life insurance is usually offered through employers and typically provides coverage for a group of employees or members of an organization. To be eligible for group term life insurance, you must be enrolled in the employer’s plan. If you want group term life insurance, contact your employer to learn more about their plan and what coverage they offer.

You may also be able to purchase group term life insurance through a trade association or other organization you are affiliated with, such as an alumni association or professional organization. Contact the organization to inquire about their group life insurance offerings.

If you are not eligible for group term life insurance through an employer or organization, you may be able to purchase individual term life insurance. Speak to an insurance agent (like The Annuity Expert) or financial advisor to learn more about available coverage options. We can help you find the right life insurance options for your needs and budget, including a free quote.

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Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

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

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