how group term life insurance works
life insurance is available to 57 of private company employees and 83 of government employees through the workplace according to the u s bureau of labor statistics 1 group life insurance policies are generally written as term insurance and offered to employees who meet eligibility requirements such as being a permanent employee who has been with the company for at least 30 days 2 group term life insurance coverage can be adjusted for qualifying life events or during an open enrollment period the standard amount of coverage is usually tied to the covered employee s annual salary with premiums primarily based on the insured s age employers typically pay most or all of the premiums for basic coverage additional amounts ordinarily in multiples of the employee s annual salary may be offered for an extra premium paid by the employee as with other types of life insurance group term pays out a death benefit to the beneficiary you choose if you pass away while the policy remains in effect insured members often receive certificates of insurance as proof of coverage 3if your company offers group term life insurance you may not be able to take it with you if you change jobs employer provided group term life insurance is not always a portable benefit 4advantages and disadvantages of group term life insurancegroup term coverage is generally inexpensive especially for younger people participants are not normally required to go through an underwriting process as all eligible employees are automatically covered however unlike individual term insurance plans which typically lock in a rate for 20 to 30 years most group plans have rate bands in which the cost of insurance automatically goes up in increments for example at ages 30 35 40 etc 5 the premiums for each rate band are outlined in the plan document provided by the employer while inexpensive the amount of coverage offered by group life insurance may not be enough for many families employers or association groups offering the insurance often limit the total coverage available to employees or members based on factors such as tenure base salary number of dependents and employment status participants cannot customize group term coverage to meet individual needs like they could with their own policy 6lastly group term coverage often ends when an individual s employment terminates some employers do allow ex employees to maintain the same coverage known as porting the life insurance 7 former employees could also possibly convert the group term to an individual permanent policy the conversion options vary may not be automatic and could require underwriting consequently an individual could be offered a policy with a much higher premium also the policies available when converting may be limited and are not always the most competitive products some employers only offer accidental death dismemberment insurance ad d policies only cover deaths or severe injuries resulting from an accident rather than from natural causes and contain significant coverage limitations always read the fine print to be sure you understand your group coverage and benefitsrequirements for group term life insurancetypically all employees are automatically enrolled in the base coverage once they meet the eligibility requirements those requirements vary by plan and employer they can include working a certain number of hours per week or being an employee for a certain period of time group term life sold by associations such as fraternal organizations trade groups and charitable groups includes other requirements such as maintaining membership in the organization the availability of supplemental group term coverage also differs among employers they may offer extra coverage for the employee beyond the base insurance as well as optional insurance for a spouse and or children in some plans individuals can only enroll for supplemental insurance when they are initially employed or upon a qualifying life event such as the birth of a child in other plans supplemental group term coverage can be added during open enrollment periods 8supplemental coverage may require underwriting usually it is a simplified underwriting process whereby the insurance applicant answers some questions to determine eligibility rather than undergoing a physical exam the carrier then decides whether or not it will offer the additional coverage special considerationsemployers are allowed to provide employees with 50 000 of tax free group term life insurance coverage as a benefit any amount of coverage above 50 000 that is paid for by an employer must be recognized as a taxable benefit and included on the employee s w 2 9it s worth comparing your employer s offering with what you could get buying your own individual policy to ensure you ll be receiving the best term life insurance policy possible it is also important to revisit the coverage you selected during open enrollment each year to make sure the plan still fits your needs consider your employer sponsored group life insurance to be one piece of your insurance plan to calculate your total needs and understand how group insurance can play a part it makes sense to determine 