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About two-thirds of Americans rely on group life insurance for work. However, according to LIMRA and Life Happens Insurance Barometer Survey, almost half of these people either do not understand how it works or only have some understanding of it.
What is group life insurance?
Group life insurance is a single contract that provides coverage for a group of people, usually working for the same company. Employers have policies that cover their employees. If you die while enrolled in group insurance, the beneficiary will be paid.
The most common group life insurance is provided by your employer. However, some churches, professional societies, alumni associations, unions, and other related organizations offer group life insurance to their members.
Various formulas are used to calculate group life insurance benefits. Some of the most common types are listed below.
Fixed Multiple Benefit Plan
These group life plans tie the death benefit to a multiple of your wage, such as double your annual income. The benefits are linked to your salary, so the higher your income, the higher your coverage.
variable multiple benefit plan
The benefits of these group life insurance plans are based on earnings multiples at certain thresholds. For example, a death benefit may be equal to your salary if it is below a certain amount, or double your annual income if it is above a certain amount.
Fixed benefit plan
These group life insurance plans are fixed amounts that pay all employees the same amount. Payments between $10,000 and $25,000 are the most common.
Variable Dollar Benefit Plan
Variable dollar plan payments depend on your income and years of service.
What is the purpose of group life insurance?
The purpose of group life insurance is to provide peace of mind to employees and their families in the knowledge that they and their families have some financial security in the event of the death of the person covered by the group life insurance policy.
Companies offer group life insurance as a means of attracting and retaining talent. For companies, offering group life insurance is an effective way to show employees that they are valued and that their health comes first.
Group life insurance can be a lifeline for families in need. However, one thing to know about group life insurance is that it is often not enough. Group life insurance is sometimes called supplemental life insurance because it aims to provide additional protection beyond an individual life insurance policy.
Our life insurance calculator will help you estimate the amount of life insurance you need.
Advantages and disadvantages of group life insurance
Group life insurance is a valuable perk, but it has its pros and cons.
Benefits of group life insurance
- Group life insurance is generally less expensive than individual life insurance because the employer covers all or most of the costs.
- Unless you want to purchase additional group insurance, it is often easier to get group life insurance because no medical examination is required.
- Group life insurance can be subscribed at the time of joining the company or at the time of general enrollment, so it is easy to subscribe.
- You may be able to add spousal and/or dependent coverage.
Disadvantages of group life insurance
- When you quit your job, you often lose your coverage. The only exception is if your policy is “portable”. This means continuing to purchase group life insurance (at your own expense) even after you stop working.
- Group life insurance death benefits are generally lower than individual insurance.
- Most group life insurance policies have no cash value. That means you can’t borrow against it like you can with permanent life insurance.
Summary: Advantages and disadvantages of group life insurance
When to enroll in group life insurance
If your employer offers free group life insurance, it makes sense to choose it. It usually costs nothing and provides your beneficiaries with a little more financial security if you die. Even if you have to pay for group insurance, it is usually cheaper than individual life insurance.
Beyond that, group life insurance is an excellent way to receive coverage if you have trouble qualifying for individual policies due to health problems. This is because they are often more lenient.
Group life insurance requirements
To be eligible for group life insurance, you typically must be an active employee of the company that provides the insurance. Some policies may require a certain number of hours worked per week to qualify, while others may be available to all employees regardless of status.
group life insurance premiums
Group life insurance premiums are often fully or partially paid by the employer. If you pay a portion, it can be deducted from your salary. Premiums depend on factors such as age, salary, and whether you smoke. Employers may also offer different levels of coverage at different price points, so you can choose the coverage you need based on your needs and budget.
group life insurance costs
The cost of group life insurance depends on the employer, life insurance company, and group characteristics such as the average age of the employees. The average cost of group life insurance purchased through your employer is usually very low.
Take, for example, group life insurance from Walmart and Amazon, the largest companies in the United States.
walmart Provide full-time employees with company-paid life insurance equal to their annual salary up to $50,000. Beyond this, hourly associates can pay up to $200,000 in group life insurance, and salaried workers and drivers can pay up to $1 million in insurance.
A 40-year-old, non-smoking, full-time Walmart employee will pay $0.0295 on $1,000, or $2.95 per fortnightly payment period, plus $100,000 in additional coverage.
These additional premiums are deducted from your salary.
Amazon Free basic life insurance equal to double your annual income for most part-time and full-time employees. Employees have the option to purchase additional coverage up to 10 times their base annual salary.
For example, a 40-year-old full-time Amazon employee pays $0.059 for $1,000 of additional coverage. If that employee wants to purchase her $100,000 additional group life insurance, her monthly premium will be $5.90.
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Group Life Insurance FAQ
Is group life insurance paid?
Group life insurance pays a death benefit if the insured dies during the policy period. The death benefit can be used in any way by the beneficiary, such as paying for funeral expenses or daily living expenses.
Group life insurance may also offer accelerated death benefits that pay a portion of the death benefit while you are alive if you are diagnosed with a terminal illness.
What is the difference between group life insurance and life insurance?
Group life insurance is usually provided by your employer and covers all employees of the company, while individual life insurance is insurance that you buy yourself. The main advantage of group life insurance is that it is usually cheaper than individual policies. However, group life insurance usually only offers a small amount of coverage, and you usually lose coverage when you quit your job.
Individual life insurance offers more flexibility, allowing you to choose from a variety of coverage periods, death benefits, and life covenants that add additional coverage. Individual life insurance is generally more expensive than group life insurance.
What types of group life insurance are there?
There are three main types of group life insurance that you may see if your employer offers this benefit.
- basic group life insurance, also known as supplemental life insurance, is usually free and cannot be declined by the employee. For this reason, it makes sense to purchase basic group life insurance, if available.
- Voluntary insurance is additional group life insurance that you can purchase yourself if you need more than what your employer provides for free. Any life insurance policy may require you to submit an “Evidence of Insured” form that must be approved by the insurance company.
- Voluntary dependent life insurance is additional coverage that you can purchase for your spouse, partner, or child through workplace benefits.
What is the most common type of group life insurance?
The most common type of group life insurance is term life insurance. The term of employment is renewed annually. If you die during the term of your group life insurance policy, the beneficiary can receive a death benefit.
Can I change from group life insurance to individual life insurance?
If you leave your employer, you may be able to convert your life insurance policy to an individual policy, as some group policies have a conversion option. But before that, it’s important to know that your premiums after conversion can be higher than if you bought comparable individual life insurance. That is, unless you have a health problem that makes it difficult or expensive to qualify for your own policy.
