Group life insurance, sometimes called employer-provided life insurance or group term life insurance, is one single life insurance policy that covers a group of people. Group term life insurance is usually offered by employers, but may also be offered by unions and trade organizations. Employers often offer group life insurance as part of a benefits package: 55%of private industry workers had access to employer-provided life insurance in September2023. [1]
If you’re eligible for a group policy, it’ll be easy for you to qualify for, and your coverage will likely be free or cheap. However, a group policy rarely provides all of the protection you need. Most people are best off getting an individual life insurance policy and supplementing that coverage with a group policy.
How does group life insurance work?
In many ways, a group life insurance policy works just like an individual term life insurance policy.
You make monthly or annual payments to keep the policy active.
The policy expires after a certain period— for group life, coverage is often renewed yearly by the policyholder.
The insurance company pays a death benefit to a designated beneficiary for most causes of death if you die while the policy is active.
But a group policy also works differently from an individual policy in a few ways.
The policy is owned by your employer, not you.
It has fewer medical requirements for approval.
You usually can’t keep your coverage if you change your job.
Most employers don’t let you keep your group life insurance if you leave the company. And even in cases when you can take your coverage with you, it’ll often be simpler and cheaper to buy your own policy.
If you’ve had difficulty qualifying for your own life insurance in the past due to health reasons, then keeping or converting your group policy might be a more attractive option for you. The process won’t require you to take the medical exam, which is normally a standard part of the life insurance application process.
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Advantages & disadvantages of group life insurance
Every financial product has advantages and disadvantages. If group life insurance is an option for you, consider its pros and cons before you decide to set up the coverage.
Advantages:
Low-cost: Group term life insurance is often subsidized by the policyholder (e.g., your employer), so you pay little or none of the policy’s premiums.
Guaranteed: Most group life insurance plans offer coverage for all qualified individuals, regardless of health conditions.
Disadvantages:
Coverage limits: Most people need life insurance coverage equal to about 12 times your salary. With group coverage, there’s a limit to how much you can get, usually $50,000, or one to two times your annual salary.
No portability: If you change jobs, in most cases you can’t take this coverage with you.
Only having life insurance coverage through your group plan will almost always leave you under-protected.
- Patrick Hanzel
How much does group life insurance cost?
The cost of group term life insurance depends on the company or organization that manages your policy. You may need to contribute some money to your premiums or the cost may be completely covered by your employer.
Is group life insurance taxed?
If the cost of your group coverage exceeds $50,000, you could have to pay additional taxes. The IRS considers any premiums your employer pays over $50,000 to be a type of income — a benefit that’s not part of your salary but is taxable. [2]
The taxable amount varies on an individual basis, but you may be able to find it on your paystub as a line item labeled “group term life” or “GTL.” This indicates the amount of premiums your employer paid toward your coverage that are taxable.
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What is supplemental group life insurance?
Some employers allow you to purchase extra coverage, called supplemental life insurance, optional life insurance, or voluntary life insurance.
If you opt for supplemental life insurance, the exact cost will vary based on how much coverage you want, your age, and whether your employer subsidizes any premiums.
Supplemental life insurance can make sense if you’ve been declined private life insurance in the past because of your age or a chronic illness. In that case, supplemental life insurance through your employer could be a good way to get the additional coverage you need.
Should you get group life insurance?
If it’s offered to you, there’s no reason not to join your company’s life insurance plan. It’s an easy, affordable way to start or add to your financial safety net for your family. But, if any loved ones rely on you financially, you should also own a personal term life insurance policy.
Policygenius experts recommend having a death benefit of at least 10 to 15 times your income to prevent your family from being underinsured. This is significantly more than an employer-sponsored plan will offer you.
“The combination of benefit limits, inability to customize, and portability restrictions means that having life insurance coverage only through your group plan will almost always leave you under-protected,” says Patrick Hanzel, advanced planning manager and certified financial planner at Policygenius. “A strong financial plan requires limiting these risks whenever possible.”
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How to get group life insurance
You can usually enroll in an employer-sponsored group life plan when you start a job. If you don’t enroll when you’re hired, you can sign up during an open enrollment period or if you have a qualifying life event, such as:
Birth or adoption of a child
Coverage loss
Death in the family
Divorce
Marriage
Unlike most life insurance policies, your health and age rarely impact whether you qualify for group life insurance. What’s more, you probably won’t need to go through an individual underwriting process or take a medical exam to get coverage.
Frequently asked questions
What is a group term life insurance plan?
Group term life insurance is a single policy owned by one organization (usually an employer), that covers many people. It pays a benefit to your beneficiaries if you die while the policy is active. Group life insurance is usually provided at little or no cost to you as an employee.
What’s the difference between group life and individual term life insurance?
Group life insurance covers many people with one policy, whereas individual term life insurance covers one person. Group life offers less coverage, but is cheaper and easier to qualify for than term life. Group life insurance is often tied to your employer, so if you change jobs, you’re likely to lose your coverage, but if you have your own term policy, changing jobs won’t affect your coverage.
What happens to group life insurance if you leave your job?
You either lose the policy or have the option to continue paying for the coverage on your own, often at a much higher rate. In most cases, it’ll be better for you to get your own individual policy than to try to continue your group coverage on your own.
