How Does Group Life Insurance Work?

Key Takeaway

Many companies offer their employees group life insurance as part of their benefits package. Because they are essentially buying insurance in bulk for their employees, premiums can be much lower than individual insurance. Group policies typically function the same way as individual life policies in that they deliver death benefits to designated beneficiaries. 

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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.

What Is Group Life Insurance?

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.

How Group Life Insurance Works

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.

Find the Right Plan 

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. 

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The information above is for educational use only and does not represent insurance, tax or legal advice. It is not a recommendation or solicitation to buy insurance. Please talk to your licensed insurance agent for more information about life insurance and your needs. Please consult with the appropriate professional for tax or legal advice. Guarantees are backed by the claims-paying ability of the issuing insurance company.

Article Author: Meredith Bell
Author Bio: Meredith joined Everly in 2022 and has 20+ years of experience in the life insurance industry. She has held various roles in advertising, marketing, communications, sales and distribution support, and product development. Outside of the office, Meredith lives with her daughter Kennedy and their dog Mavis. Meredith enjoys cooking, camping, gardening, hiking, and bourbon (though not always at the same time). She is a live music enthusiast and an avid reader. Her favorite quote is by Thomas Jefferson: "I cannot live without books." Meredith agrees, but would add cheese, movies, and dogs to that list.

Policies are issued by Everly Life Insurance Company (“Everly Life”), Topeka, KS. Everly Life is not licensed in the state of New York and does not solicit or transact business in New York.

A.M. Best's 15 ratings are a measure of claims-paying ability and range from A++ (Superior) to F (in Liquidation). Ratings are current as of January 25, 2024 and subject to change at any time. While ratings can be objective indicators of an insurance company's financial strength and can provide a relative measure to help select among insurance companies, they are not guarantees of the future financial strength and/or claims-paying ability of a company and do not apply to any underlying variable portfolios. The insurance agency from which a policy is purchased, and any affiliates of those entities, make no representations regarding the quality of the analysis conducted by the rating agencies. The rating agencies are not affiliated with the above-mentioned entities, nor are these entities involved in any rating agency's analysis of the insurance companies.

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