Editorial Note: We earn a commission from Forbes Advisor’s affiliate links. Commissions do not influence the opinions or evaluations of our editors.

Roughly two-thirds of Americans rely on group life insurance from work. However, about half of those people either don’t understand or only somewhat understand how it works, according to an Insurance Barometer study by LIMRA and Life Happens, both industry-funding groups.

What is Group Life Insurance?

Group life insurance is a single contract that provides coverage to a group of people, usually those who work for the same company. The employer owns the policy, which covers the employees. Your beneficiaries will receive a payout if you die while under group insurance.

The most common group life insurance policies are provided by employers. However, some churches, professional associations, alumni groups, unions and other affiliated organizations offer group life insurance to members.

There are different formulas used to calculate group life insurance benefits. Some of the most common types are below.

Fixed Multiple of Earning Benefit Plan

These group life insurance plans tie your death benefit amount to a multiple of your wages, such as twice your annual salary. Because the payout is linked to your salary, the level of protection increases as your income increases.

Variable Multiple of Earnings Benefit Plan

The benefits of this group life insurance plan are based on the multiple of your earnings at certain thresholds. For example, the death benefit can be equal to your salary if you make below a certain amount, or it can be double your annual income if you make more than a certain amount.

Flat-dollar-amount benefit plan

These group life insurance plans pay the same amount to all employees and is a fixed dollar amount. Payouts ranging from $10,000 to $25,000 tend to be the most common.

Variable-dollar-amount benefit plans

Variable-dollar-amount plan payouts can vary based on your earnings and length of service.

What is the purpose of group life insurance?

The purpose of group life insurance is to help provide peace of mind for employees and their families, knowing that they will have some financial security if the person covered by the group life insurance dies.

Businesses offer group life insurance as a way to help attract and retain talent. For businesses, offering group life insurance can be an effective way to show employees that they are valued and that their well-being is a priority.

For families struggling to make ends meet, group life insurance can be a lifeline. However, one thing you should know about group life insurance is that it is often not enough on its own. Group life insurance is sometimes called supplemental life insurance because it is intended to provide additional protection beyond an individual life insurance policy.

Our life insurance calculator can help you estimate how much life insurance you need.

Pros and Cons of Group Life Insurance

Although group life insurance is a valuable benefit, it has its pros and cons.

Benefits of Group Life Insurance

  • Group life insurance is generally less expensive than individual life insurance because your employer pays all or most of the cost.
  • Qualifying for group life insurance is often easy because no medical exam is required—unless you want to buy additional group life.
  • Group life insurance is easy to get because you can sign up during employee onboarding or open enrollment.
  • You may be able to add coverage for a spouse and/or dependents.

Disadvantages of Group Life Insurance

  • If you leave your job, you often lose coverage. The only exception is if your policy is “portable”, meaning you continue to purchase group life insurance (at your own expense) after you leave employment.
  • The death benefit of a group life insurance policy is usually lower than that of an individual policy.
  • Most group life insurance policies don’t have a cash value, which means you can’t borrow against it like you can with permanent life insurance.

Summary: Advantages and disadvantages of group life insurance

When to get Group Life Insurance

If your employer offers free group life insurance, it makes sense to opt for it. It usually costs you nothing and will give your beneficiaries a little more financial security in the event of your death. Even if you have to pay for group life, it is usually cheaper than an individual life insurance policy.

Additionally, group life insurance can be a great way to get coverage if you have trouble qualifying for an individual policy due to health issues. This is because underwriting standards are often more lenient for group policies.

Requirements for Group Life Insurance

To qualify for group life insurance, you must be an active employee of the company that offers the policy. Some policies may require that you work a certain number of hours per week to qualify, while others may be available to all employees regardless of status.

Premium for Group Life Insurance

Group life insurance premiums are often paid in whole or in part by the employer. If you pay a portion, it can be deducted from your paycheck. Your premium may depend on factors such as your age, salary and whether you smoke. Your employer may offer different levels of coverage at different price points, so you can choose how much coverage you want based on your needs and budget.

Cost of Group Life Insurance

Group life insurance costs depend on your employer, life insurance company and group characteristics, such as the average age of employees. The average cost of group life insurance purchased through an employer is usually quite low.

For example, here’s a look at Walmart and Amazon’s group life insurance, two of the largest companies in the United States

Walmart Provides full-time employees with company-provided life insurance equal to their annual salary, up to $50,000. Beyond that, hourly associates can pay up to $200,000 in group life insurance, while salaried associates and drivers can pay up to $1 million in coverage.

A 40-year-old full-time Walmart employee who does not use tobacco pays $1,000 per $100,000 in additional coverage, or $.0295 per bi-weekly paycheck of $2.95.

This additional premium is deducted from the paycheck.

the amazon Most part-time and full-time workers offer basic life insurance equal to twice their annual salary for free. Employees have the option to purchase additional coverage up to 10 times their basic annual income.

For example, a 40-year-old full-time Amazon employee would pay $0.059 per $1,000 of excess coverage. If that employee were to purchase an additional $100,000 of group life insurance, their monthly premium would be $5.90.

Compare life insurance companies

Compare policies with 8 leading insurers

Group Life Insurance FAQ

What does group life insurance pay?

Group life insurance policies provide a death benefit if the insured dies while the policy is in force. Death benefits can be used by beneficiaries in any way, such as covering funeral expenses or paying daily bills.

Group life insurance may also offer accelerated death benefits, which pay a percentage of the death benefit amount 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 an employer and covers all employees of the company while individual life insurance is a policy that you buy for yourself. The main advantage of group life insurance is that it is usually less expensive than individual policies. However, group life insurance typically provides a small amount of coverage, and you typically lose coverage if you leave your job.

Individual life insurance offers more flexibility—you can choose from different lengths of coverage, death benefit amounts, and life insurance riders that add additional coverage. Individual life insurance is generally more expensive than group life insurance.

How many types of group life insurance?

There are three types of primary life insurance you can check to see if your employer offers this benefit.

  • Basic Group Life Insurance, also called supplemental life insurance, is usually free and cannot be refused by employees. For this reason, it makes sense to enroll in basic group life coverage if it is available to you.
  • Voluntary life insurance You can purchase additional group life insurance for yourself if you want more than what your employer offers for free. Voluntary life insurance may require you to submit a “Proof of Insurance” form which must be approved by the insurance company.
  • Voluntary Dependent Life Insurance You can purchase additional coverage for your spouse, partner or children through your workplace benefits.

What is the most common type of group life insurance?

The most common type of group life insurance is term life insurance. Coverage is renewed every year you are employed. If you die while the group life policy is active, your beneficiaries will receive a death benefit.

Can I convert a group life policy to an individual life policy?

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 you do, it’s important to know that your premium after conversion may be higher than buying a comparable individual life insurance policy. That is, unless you have health issues that make it difficult or expensive to qualify for your own policy.

By admin

Leave a Reply

Your email address will not be published. Required fields are marked *