How Does Group Life Insurance Work?

According to a recent article by Forbes,* roughly two-thirds of Americans rely on group life insurance from their employer to help protect their families if they should die prematurely.  

Whether you are an employer or an employee seeking life insurance solutions and information, it’s important to know how these policies work. 

In this article, we’ll dive into group life insurance and how it works.

Group life insurance is a form of life insurance that is offered to a group of people at a typically lower cost than what is offered on the individual level. Generally, corporations or employers will purchase group life insurance plans as a benefit to their employees in order to provide them with life insurance coverage. 

Just like life insurance for individuals, group life insurance works by providing a form of insurance coverage (typically for as long as the person is employed, although some forms of group life insurance are portable). Each policy could have different conditions,provisions and limitations, so read the policy carefully for complete details. However, depending on the benefits offered by the employer, employees may have their premiums covered by their employer or split the premium with them through regular pre-tax payroll deductions.

These products are usually offered through an employer as part of an employee benefits package, but sometimes this coverage can be extended to the spouses or immediate family members of the employee depending on the plan. Just like individual life insurance plans, group life insurance pays a death benefit to the employee’s beneficiaries.

For a group life insurance policy, the employer is the policyholder, and they cover their employees under the policy. Employees can usually select a coverage plan that starts with the amount of their base salary and then decide to opt in to voluntary coverage, which means they could potentially increase their coverage based on their own financial situation and the needs of their beneficiaries. Typically, these plans only expire when the employee leaves the company – but in some cases the insurance is ‘portable,’ which means the employee can purchase the policy for themselves upon leaving the job. (Plans may also expire if the employer chooses to terminate coverage and/or obtain coverage through another carrier.) 

What about the employer? Some employers choose to cover the entirety of the premium costs, while others will split the premiums with their employees, usually via pre-tax payroll deductions. Even in the latter plan, many policyholders find this solution more affordable than paying for an individual policy. Also, many employees may appreciate the ease of opting into group life insurance, since these products typically don’t require medical underwriting or for the employee to fill out a standard life insurance application, unless they are electing to purchase additional voluntary coverage.

Whether you’re an employer looking for the best option to offer your employees or an employee weighing the pros and cons of an individual versus a group life insurance policy, it’s important to understand your options. You should speak with a licensed insurance agent to fully understand the difference between individual and group policies, and what may work best for your particular situation.

What happens when a life insurance policy matures?