Group life insurance is a type of life insurance in which a single contract covers an entire group of people. Typically, the policyowner is an employer or an entity such as a labor organization, and the policy covers the employees or members of the group. Group life insurance is often provided as part of a complete employee benefit package. In most cases, the cost of group coverage is far less than what the employees or members would pay for a similar amount of individual protection. So if you are offered group life insurance through your employer or another group, you should usually take it, especially if you have no other life insurance or if your personal coverage is inadequate.
As the policyowner, the employer or other entity keeps the actual insurance policy, known as the master contract. All of those who are covered typically receive a certificate of insurance that serves as proof of insurance but is not actually the insurance policy. As with other types of life insurance, group life insurance allows you to choose your beneficiary.
Term insurance is the most common form of group life insurance. Group term life is typically provided in the form of yearly renewable term insurance. When group term insurance is provided through your employer, the employer usually pays for most (and in some cases all) of the premiums. The amount of your coverage is typically equal to one or two times your annual salary.
Group term coverage remains in force until your employment is terminated or until the specific term of coverage ends. You may have the option of converting your group coverage to an individual policy if you leave your employer. However, most people choose not to do this because these conversion premiums tend to be much higher than premiums for comparable policies available to individuals. Typically, only those who are otherwise uninsurable take advantage of this conversion option.
What is ‘Group Life Insurance’
Life insurance offered by an employer or large-scale entity (i.e. association or labor organization) to its workers or members. Group life insurance is typically offered as a piece of a larger employer or membership benefit package.
By purchasing coverage through a provider on a «wholesale» basis for its members, the coverage costs each individual worker/member much less than if they had to purchase an individual policy. Those receiving coverage may not have to pay anything «out of pocket» for policy benefits or they may elect to have their portion of the premium payment deducted from their paycheck.
Group coverage has certain basic attributes which are discussed here.
Master contract: the group life policy insures a number of people under one contract, typically eliminating the need for individual underwriting and evidence of insurability. The employer is the applicant and policyholder who chooses the insurance as well as the amount and type of coverage for the group’s members. It is the employer and the insurer who are parties to the group life insurance contract. In considering a group for coverage, the insurer looks at the group’s health as a whole, rather than by each individual. Experience rating sets the group’s premium based upon its prior claims experience
Flow of insureds: insured members enter and exit the group and coverage. The constant flow of lives keeps replenishing the group as old members leave with the resultant effect of continued stability of the group’s age and health.
Affordability: group life insurance is less expensive than individual coverage per unit of benefit. The reasons are two.
Lower administrative, operational and selling expenses;
Frequent employer cost sharing. A plan may be
Non-contributory: the employer pays the entire premium.
Contributory: the employee is required to pay some portion of the premium.
Group Term Life Coverage: most group plans offer term life insurance coverage. Annual renewable term is the policy type, allowing the insurer to increase the premium annually based upon the insured group’s experience rating. An advantage of annual renewable term is the lack of any required evidence of insurability.
Group Permanent Life Coverage: less common is for group plans to offer a form of whole life coverage. The following paragraphs discuss the more common forms of group permanent coverage.
Group Ordinary: such plans accumulate cash value which may or may not belong to the employee depending upon the plan rules. Forfeited cash value the employer may use to pay for remaining employees’ coverage.
Group Paid-Up: such arrangements combine term and whole life coverage as follows. The employer funds the term portion while the employee pays for the whole life piece. The sum of the coverages equates to the total amount of coverage to which employees are entitled. Upon separation from the company pursuant to termination or retirement, the employees own the policy.
Universal Life: with this sort of arrangement, the employee pays most of the premium and has greater rights of policy ownership than with an ordinary term policy. The policy has the same features as individual universal life coverage.