Group term life insurance is a fairly common part of employee benefit packages -- offered by about 85% of eligible organizations -- often at no cost to the employee. That sounds great! But, what is group term life insurance, exactly?
In brief, life insurance is a contract between an insured individual and an insurance company. The insurer promises to pay out a sum of money in the event of the insured’s death.
So, group term life insurance is a type of life insurance policy that offers this coverage to a group of people (such as the employees at a company and their dependents) while they are part of the organization that has purchased the policy.
Whether you're already enrolled or considering picking the benefit up, it can’t hurt to familiarize yourself with the ins and outs of group life insurance. Let’s take a closer look.
What Is Group Term Life Insurance? How It Works
In order to qualify for group term life insurance through your employer, you will likely need to meet certain eligibility requirements. What this entails will vary, but it usually means you must be classified as a permanent employee (rather than temporary, contract, or seasonal), must have been with the company for a certain number of days, and must work a certain number of hours per week.
You typically have to wait until either open enrollment or a special enrollment period to pick up this benefit.
Open enrollment happens around the same time every year, allowing all employees to pick up or change the benefits they receive.
Special enrollment periods open in the event of major life changes -- if you’re a new employee, if you’ve gotten married, or just had a child, for example.
The "term" in group term life insurance refers to the duration of the coverage. With term life insurance, the insured person is covered for a certain amount of time. In the case of group term coverage through your employer, this is usually the duration of your employment. If the insured dies or, in some cases, is diagnosed with a terminal illness during their policy's term, a death benefit is paid out.
The death benefit is a sum of money that goes to a designated beneficiary -- a person or organization named by the insured who receives the insurance policy's payout. In a basic group term life insurance plan, the death benefit is usually either a year's salary (excluding bonuses, commissions, and overtime pay) or a flat amount, often between $20k and $50k. Per the IRS, the first $50,000 of the insured employee’s death benefit, and $2,000 of a spouse or dependent insured’s death benefit are tax exempt.
Your group term life insurance may be employer carried. This means that the employer either pays for the policy's monthly fees -- called the premium -- or that they've subsidized the monthly premium, allowing employees to pay a little less per month than they might have otherwise.
So far, we've mostly been focused on group term life insurance offered through an employer, because that is the most common way to get it. Other groups, like professional or academic organizations, may offer group life insurance to their members, as well.
Regardless of where you're getting it, though, you should read through the plan details. Even if you have group term life insurance at no out-of-pocket cost, knowing exactly what you're getting, who is covered, and whether you can take that coverage with you if you leave your job or organization is always a good idea.
Pros and Cons of Group Term Life Insurance
Pros of Group Term Life Insurance
It’s usually affordable, especially for younger people. Some employers even cover the cost of monthly fees completely.
You may be able to add your spouse and dependents to the list of insured.
It’s convenient. Because it’s a group policy, you and any dependents you add likely won’t have to undergo insurance underwriting.
Cons of Group Term Life Insurance
It’s dependent on your job. If you leave your employer, there may be no option to take the coverage with you, or continuing the coverage as an individual may be prohibitively expensive.
Group term life insurance may not be enough for your needs. Basic group term life insurance policies typically only cover about a year’s salary, and that’s excluding things like bonuses and overtime pay.
Is Group Term Life Insurance Enough On Its Own?
A group life insurance policy through your employer is a great option for many, but it may not provide everything you and your loved ones need. Keep in mind that group term life insurance usually pays out roughly a year’s salary excluding things like bonuses and overtime pay. If you were hoping to provide for a spouse or other dependents for longer than a year, this may not be enough.
Group term life insurance is a great benefit to have through your employer. It’s easy, convenient, and affordable! Now that you have a better understanding of what group term life insurance is, you can start to examine whether it will meet all your needs, or if you and your family will need more robust coverage.