Group Life Insurance

Understanding Group Life Insurance Coverage

When large organizations, such as employers and trade unions, want to offer life insurance policies to their members, they typically rely on group life insurance, also known as employer-sponsored insurance. These policies are widely used in North America, and they’ve come to be viewed as a standard benefit by many employees: One 2017 study found that people in the U.S. who have group life coverage outnumber those with individual insurance.

group life insurance guide

Group Life Insurance Basics

It’s important to remember that these policies include conditions. For instance, your workplace might demand that you be employed for a set time frame or probationary period before you can get on the company plan. Group life insurance policies are also employer-controlled. Although you’re the beneficiary, the employer decides the details of how the policy works, including:

The total amount of coverage included.
Whether benefits are offered at a flat rate or as a percentage of employee salary.
Which coverage continuation options are offered if someone's employment ends.
Whether benefits also extend to spouses and children.

The good news is that an employer can’t just pick and choose employee coverage on a case-by-case or discriminatory basis. To comply with labor laws, the policy’s terms generally have to be fairly applied across the board. That being said, benefits based on salary percentages will naturally vary depending on how much each covered person makes.


What Advantages Does Group Life Insurance Offer?

One of the most noteworthy advantages of group life insurance is that it’s extremely cost-effective, particularly for employees whose fees come from their paychecks automatically. The same goes for employers who get to provide coverage while taking advantage of wholesale group rates that help them stay competitive in the labor market.

As a variety of life insurance, these policies play a vital role in supporting your loved ones after you pass away. Your designated beneficiaries can use the benefits for the new financial burdens they’ll have to take on if you were the breadwinner. They can also pay for expenses like funeral costs.


Frequently Asked Questions

Not all group life insurance policies can be cashed-in, or voluntarily surrendered in exchange for a one-time payment. Term life policies, which include the majority of group coverage plans, are typically ineligible. Cash-ins can also incur surrender fees and potentially hefty taxes you wouldn't normally pay.

It's worth noting that there are other options. For instance, your policy might allow you to make withdrawals during periods of financial hardship. Although this would reduce your death benefits, it wouldn't entirely eliminate them the way a cash-in would.
You might need to leave a group life insurance policy for many reasons. Maybe your employer decided to switch to a new coverage plan that you don't like, or perhaps you're moving on to a new company.

Fortunately, such situations aren't a total leap into the unknown; you'll usually find them explicitly laid out by your policy's conversion clause. Conversion entails changing your policy coverage to an individual policy, but not all conversions are alike – or permissible. For instance, people with Veteran's Group Life Insurance (VGLI) can convert their policies into regular commercial coverage, but they can only switch to whole life policies, and they might lose their supplementary benefits in the process.

Another important concept to understand is portability. This means you get the option to convert to a personal or individual life insurance policy when you decide to leave the group. Portability can be helpful if you're in the middle of a term when you decide to switch employers. Bear in mind that this option is usually restricted to those who apply within a certain time frame, such as one month after they lose coverage.
These concepts are easy to confuse because they often appear side-by-side. Term life insurance, however, just means that your policy can be renewed annually at some other predetermined interval.

Term life insurance works by including death benefit limitations – if you perish after the term is up, your beneficiaries won't get paid. If your term has expired, you'll need to renew it within a grace period to regain coverage. The majority of group life insurance policies offer term life insurance instead of whole life insurance, which includes coverage that lasts for the rest of your life.
Insurance policy prices vary depending on who's covered. At the same time, most experts agree that group life coverage is a good way to save money.

Why do group life insurance policies often cost their beneficiaries less? The answer lies in how insurance fundamentally works. By pooling multiple policies together, insurers can distribute their financial risk.

With life insurance, in particular, it's highly unlikely that everyone at a workplace will perish at the same time under normal circumstances. This allows policy providers to extend more benefits than they would if they were only insuring a single individual. Since they're not taking on as much of a gamble, they tend to offer coverage at lower prices.

Finding the Right Group Life Insurance Policy

Whether you’re an employer or an employee, group life insurance policies have a lot to offer. There are also countless providers to choose from, which can make it fairly tough to pick the right option. The most important thing to remember is that shopping for group life insurance is the same as shopping for anything else. You need to do your research, ideally by comparing similar policies side-by-side.

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It's not just about the wholesale sticker price, particularly when you're relying on insurance to help you make waves in a competitive labor market. The perks your policy offers, such as convenient 24/7 access to employee coverage info, spousal coverage, and good customer service, are just as important as the benefit amount. It pays to compare the differences before investing in a purchase.