What Is Group Life Insurance? | PolicyScout (2023)

Group life insurance covers employees or members of an organization's health insurance. It may also offer additional benefits, such as oral care, vision health, and prescription drugs.

Getting group life insurance can be a difficult choice because there are many factors to consider. Fortunately, we can assist you through the process.

This article will discuss group life insurance and cover the different factors you should consider before getting it.

What Is Group Life Insurance?

Group life insurance is a type of insurance that covers multiple people under one plan. They are usually offered by companies, trade associations, professional associations, and unions.

For example, if you join a new company, they might offer group life coverage as an employment benefit.

Similarly, if you become a member of a professional association, you might be offered the opportunity to join their group life cover plan.

The costs of group life insurance can either be covered by the employer in full or be subsidized.

Depending on your company and their chosen plan, employees can get coverage anywhere from $50,000 to double their annual salary.

Terms you should know:

Beneficiary: A person who receives the death benefit (payout) from a life insurance policy in the event of the policyholder’s death.

Premiums: These are monthly or annual amounts that policyholders pay to keep their coverage.

(Video) What is Group Life Insurance?

Death Benefit: This is the amount paid to the beneficiary of an insurance policy after the policyholder’s death.

Living Benefits: These are benefits that a policyholder can use while they are alive. The most common example is a cash-value account. However, insurance riders, such as disability cover or AD&D cover, are also considered living benefits.

Cash value account: This is a type of saving account that policyholders with permanent life insurance can use to build up additional wealth through their policy.

Insurance Riders: An insurance rider adds benefits to an insurance policy or extends its coverage. They are customized to fit the policyholder's needs. The insured pays an extra premium for riders.

Advantages and Disadvantages of Group Life Insurance

Group life insurance may seem straightforward. There are, however, a few factors that set it apart from other types of life cover such as term and permanent insurance.

Advantages of Group Life Insurance

  • Qualifying is simple. As opposed to individual term policies that take into account a person's age, gender, family history, and overall health, group policies offer guaranteed coverage. As a result, the risk is not measured individually but is based on the group as a whole, including the proportion of male and female applicants, the nature of the job, and the age range of applicants. The premium is then set based on the whole group's risk profile.

  • It’s convenient. When you purchase a group policy through your workplace, you'll be able to enroll without having to do any research of your own. You will also usually have a much shorter application process than applying on your own.

  • It’s affordable. Since risk is determined by an entire group of people, the monthly payments tend to be lower, particularly if you are applying late in life, in poor health, or pregnant.

What Is Group Life Insurance? | PolicyScout (1)

Source: Pexels

Disadvantages of Group Life Insurance

  • Coverage can be limited: Many companies want to offer competitive benefits while saving as much money as they can. This means that group life insurance for employees might not be comprehensive.

  • It's usually temporary: Your employer might stop offering group life cover at any time. This is why it is generally recommended to consider group term life insurance as a supplement to individual life insurance.

  • Lower death benefits: Most people settle for having 1-2 times their salary as group life cover benefit and the death benefit is usually a lot less than an individual term life policy payout. This may not be enough to sustain their beneficiaries if something were to happen.

    (Video) Group Life Assurance explained

  • Premiums can go up: In contrast to a term life insurance policy where your rate is locked in for a specific period of time, the cost of group term life insurance rates could rise with age.

How Does Group Life Insurance Work?

Aside from coverage restrictions, a group life insurance policy works the same way as individual term life insurance:

  • A monthly or annual payment keeps the policy active

  • The policy expires after a set period of time (for group life, the policy is usually renewed every year)

  • When a person dies, the death benefit is paid to the beneficiary

In most cases, leaving an employer will result in losing your group life coverage. In some cases, you are able to take your group life coverage when you leave your company, which is called life insurance portability. If you are able to keep the coverage, it's usually more expensive to keep it than purchasing a new policy.

What Is Group Life Insurance? | PolicyScout (2)

Source: Pexels

What Is the Cost of Group Life Insurance and Will I Pay Tax on It?

Group life insurance premiums vary depending on the company or organization managing the policy.

Depending on the type of policy your company has, you may be required to contribute some money to your premiums, or the company may cover the entire cost.

For example, your company may cover the entire cost of your group cover and add it in as an employee benefit, or they might offer to contribute half of the costs. For example, in 2021, IBM offered their employees' group life cover equal to one year’s pay and capped at $1 million.

This coverage is paid for by the company and employees are only responsible for tax costs if they decide to get coverage over $50,000.

Group Life Insurance and Taxes

If your group life cover is over $50,000, you have to pay taxes. Any premiums you get from your employer are considered part of your income, which is taxable as an employee benefit.

(Video) 7 Group Life Insurance

If you’d like to learn more about setting up a group life insurance plan for your company, reach out to us to find the best providers in your state.

What Is Group Life Insurance? | PolicyScout (3)

Source: Pexels

How to Get Group Life Insurance

Depending on your employer, there are generally some conditions associated with group life insurance policies.

You may have the option of purchasing additional life insurance coverage, which is also known as supplemental life insurance.

Keep these points in mind:

For example, employees may have to complete a probation or waiting period before they are approved for life insurance.

  • Unlike most other life insurance policies, group life insurance policies rarely depend on health or age. There is no need for you to go through the underwriting process to get coverage.

What Is Underwriting?

Underwriting is a risk assessment done by insurance companies to determine the probability of a person dying prematurely.

Insurance companies will look at a number of factors, such as age, health, and driving history before they accept an application.

(Video) Everything You Need To Know About Group Term Life
  • If you don't sign up for group life insurance immediately, you'll only be able to do so in the open registration period or after a significant life event, such as getting married.

  • Group coverage is normally only valid for the duration of the staff member's employment; however, some policies are transferable. The coverage ends upon resignation or termination.

  • Premium amounts and coverage types vary depending on the employer. You might be able to choose an or other insurance riders to customize your coverage.

  • In some cases, you may be able to increase your group life insurance death benefit. You then, however, may be required to fill out a Proof of Insurability (POI) form, which may also include a medical questionnaire.

  • An insurer may decline your application if you have health problems or cannot prove a financial need for supplemental insurance.

What Is Group Life Insurance? | PolicyScout (4)

Source: Pexels

Where Can I Learn More About Life Insurance?

If you’re interested in learning more about your life insurance options, visit our life insurance hub and read our latest articles on term life insurance, universal life insurance, and final expense life insurance.

We cover a range of topics that will help you understand life cover and choose a top provider.

If you need personalized assistance, reach out to one of our experienced consultants who will be able to help you find providers and plans in your area. Call us today on 1-888-912-2132 or send an email to help@policyscout.com to get started.

(Video) How Life Insurance Providers Are Screwing You Over! - Dave Ramsey Rant


What is a group term life insurance? ›

Group term life insurance is term life insurance offered to all members of a certain group, such as all the employees at a company. The insurance is provided at a group rate, which is typically cheaper than purchasing the same coverage individually.

What is the difference between term and group life insurance? ›

Individual policies are owned by an individual person and within this category, you can choose between permanent (or whole) and term policies. Group life insurance, on the other hand, typically comes in the form of an employer-sponsored life insurance policy you receive as a benefit through work.

What is the most common form of group life insurance? ›

Term insurance is the most common form of group life insurance. Group term life is typically provided in the form of yearly renewable term insurance. When group term insurance is provided through your employer, the employer usually pays for most (and in some cases all) of the premiums.

What is meant group insurance? ›

Group Insurance covers a defined group of people, for example members of a professional association, or a society or employees of an organization. Group Insurance may offer life cover, health cover, and/or other types of personal insurance.

What is a major benefit of group life insurance? ›

The biggest appeal group life insurance has for employees is its value for money. Group members typically pay very little, if anything at all. Any premiums are drawn directly from their weekly or monthly gross earnings. Qualifying for group policies is easy, with coverage guaranteed to all group members.

What is an example of group life insurance? ›

Group life insurance is a type of insurance that covers multiple people under one plan. They are usually offered by companies, trade associations, professional associations, and unions. For example, if you join a new company, they might offer group life coverage as an employment benefit.

Can I cash out my group life insurance policy? ›

There are several options for cashing out a life insurance policy including: Withdrawing money from the cash value account (like a savings account) Taking a loan against the policy's cash value. Surrendering the policy to the insurance company.

What are the disadvantages of group life insurance? ›

Lack of Control

As the cover is controlled by the employer, you as an employee/policyholder do not have much freedom to customise the plan to your liking. In cases where certain freedom is allowed, you might be required to pay extra for it.

What happens to group life insurance when you retire? ›

When you retire, you may lose your employer-provided life insurance plan, so you may want to look into purchasing a plan of your own. Having your own life insurance policy in place is a good idea if you have debt, like a mortgage, or a spouse who depends on you financially.

Who is the beneficiary in group life insurance? ›

A beneficiary is the person or entity that you legally designate to receive the benefits from your financial products. For life insurance coverage, that is the death benefit your policy will pay if you die. For retirement or investment accounts, that is the balance of your assets in those accounts.

How is group life insurance paid? ›

Group life is purchased by your employer. The organization pays the premium and agrees on the level of cover with the insurance company. Death in benefit schemes is mandated to be purchased for organizations hiring over 5 employees.

What are the 3 main types of life insurance? ›

Common types of life insurance include: Term life insurance. Whole life insurance. Universal life insurance.

What type of insurance is group insurance? ›

Health insurance provided to employees by an employer or by an association to its members is called group coverage. Health insurance you buy on your own—not through an employer or association—is called individual coverage. Those are the basics.

How do group insurance policies work? ›

Group Insurance health plans provide coverage to a group of members, usually comprised of company employees or members of an organization. Group health members usually receive insurance at a reduced cost because the insurer's risk is spread across a group of policyholders.

Is group life insurance a good deal? ›

Group life insurance can be a nice perk of your job, especially if it's free. However, in most cases, employer-provided policies are relatively small compared to what you're likely to need overall in terms of life insurance, so you probably won't want to rely solely on it to cover you in case the worst happens.

Why is group life insurance Not enough? ›

The total amount of coverage may be limited to a certain multiple of the workers salary, such as twice the annual amount of earnings. If there is a maximum coverage limit on a group life insurance policy, it is possible that the total coverage available will not be high enough to provide full protection for loved ones.

Is group term life insurance a good idea? ›

Is group term life insurance a good idea? Group life insurance can be an affordable coverage option that's also easy to get, but you should also be aware of the limitations. For one, it's term coverage that is not permanent and doesn't build cash value.

What are the 2 most common types of life insurance? ›

Types of life insurance explained. There are two primary categories of life insurance: term and permanent. Term life insurance lasts for a set timeframe (usually 10 to 30 years), making it a more affordable option, while permanent life insurance lasts your entire lifetime.

Is group life insurance better than individual? ›

Group life insurance is easy. Usually, it is cheaper than an individual life insurance policy because your employer contributes to part of the premium. Moreover, it is usually guaranteed issue. Sure, the death benefit is limited, but you can't beat a guaranteed issue (i.e. no underwriting) policy.

Does group life insurance have cash value? ›

Does Group Term Life Insurance have a cash value? No. Group Term Life Insurance does not have a cash value; however, the annual premiums are usually lower than those types of insurance with cash values. How long will my Group Term Life Insurance coverage last?

What is the average group life insurance payout? ›

What is the average life insurance payout? The average life insurance payout is $168,000. Many life insurance experts recommend buying a policy with a death benefit of seven to 10 times your annual salary. If your salary is $60,000, then the death benefit would be equal to $420,000 to $600,000.

How long does group life insurance take to pay out? ›

Life insurance providers usually pay out within 60 days of receiving a death claim filing. Beneficiaries must file a death claim and verify their identity before receiving payment. The benefit could be delayed or denied due to policy lapses, fraud, or certain causes of death.

What is the cash value of a $10000 life insurance policy? ›

So, the face value of a $10,000 policy is $10,000. This is usually the same amount as the death benefit. Cash Value: For most whole life insurance policies, when you pay your premiums some of that money goes into an investment account. The money in this account is the cash value of that life insurance policy.

Can you cancel group life insurance at any time? ›

You may cancel life insurance coverage at any time.

Does group life insurance increase as you get older? ›

Is There Life Insurance Where Premiums Do Not Increase With Age? Group life insurance policies tend to have level premiums for all members and do not discriminate by age, gender, or health.

Is it better to have life insurance or retirement? ›

A 401(k) is always a better choice than a life insurance policy. Even if you would benefit from a LIRP, you should maximize contributions to your 401(k) and other retirement accounts before investing in life insurance alternatives.

Do group life insurance premiums increase with age? ›

Life insurance premiums increase with age

Insurers calculate quotes based on your individualized factors, and the more high-risk you are in passing, the more you'll be paying for life insurance coverage. So it's simple – as you age, you hold more risk, resulting in more expensive premiums.

Who gets life insurance if no beneficiary? ›

Without a named beneficiary, your life insurance proceeds become part of your estate. The life insurance proceeds get distributed accordingly, along with the rest of your assets. Your estate may need to go through probate, which often charges substantial fees and could take a long time before reaching your heirs.

Who gets life insurance without a will? ›

This means that if a person dies intestate (i.e., without a will), his or her heirs are the people who may be legally entitled to inherit the deceased's estate – their spouse, children, and so forth1. One or more heirs are usually named as beneficiaries on a life insurance policy, but they don't have to be.

Who owns life insurance policy when owner dies? ›

At the death of an owner, the policy passes as a probate estate asset to the next owner either by will or by intestate succession, if no successor owner is named. This could cause ownership of the policy to pass to an unintended owner or to be divided among multiple owners.

Is group life insurance the cheapest? ›

Typically, most employer-provided group life insurance is no-cost or is low-cost for you as the employee, making it an affordable option if it's available through your workplace. In fact, it is probably the cheapest life insurance you can get.

Is group life insurance A life insurance? ›

Group life insurance, as the name suggests, offers life insurance cover to a defined group of people such as employees of an organization, members of a professional association, or a housing society all under a single contract or insurance policy.

What are the features of group life insurance? ›

The group insurance policy protects against the risk of credit as well as life. The coverage of the insurance is directly proportional to the loan amount and the rate of interest. In case of the unfortunate death of a member, the death benefit will be paid to the nominee.

What are the advantages of group plans? ›

Because an insurance provider can spread their risk across a pool of policyholders participating in the group plan, costs are typically lower than other types of health insurance policies. This is considered to be the biggest advantage of group health insurance.

What are the 7 types of life insurance? ›

The different types of life insurance policies and their key features
  • Term life insurance.
  • Whole life insurance.
  • Whole Life vs. Term Life Insurance.
  • Universal life insurance.
  • Final expense insurance.
  • Simplified issue and guaranteed issue insurance.
  • Group life insurance.

Who is responsible for group insurance? ›

The general rule is that if an employer offers group health coverage to any full-time employees, the employer must offer coverage to all full-time employees. The employer has the option to offer coverage to part-time employees (defined as those working fewer than 30 hours per week).

Who pays the premium in group insurance? ›

Risk-Free Work Culture

One of the biggest advantages of group health insurance is that the employer bears the premium. Under this insurance plan, you can get coverage against medical expenses related to illnesses, diseases, and accidents. Additionally, it also covers pre-and post-hospitalisation charges.

Does group life insurance cost more? ›

What you need to know. Group life insurance is usually offered by an employer or business to its workers or members. It is typically much cheaper than an individual life insurance policy – but it is not tailored to your specific needs.

Is group life insurance easier to get? ›

Group policies are easy to qualify for and often free, but they rarely provide the level of coverage you need. For some people who may not qualify for a personal term life insurance policy, a group policy plus additional coverage through supplemental life insurance can provide essential protection.

How many employees do you need for group life insurance? ›

For an employer to qualify for group life insurance, your company must have at least two full-time employees who work a minimum of 30 hours per week.

What are the 4 main types of insurance? ›

There are, however, four types of insurance that most financial experts recommend we all have: life, health, auto, and long-term disability."

What are the disadvantages of group term life insurance? ›

The employee has little to no control over their individual coverage. Coverage does not continue or follow the employee if you leave your job. Healthier individuals pay the same premiums as those who are considered to be a higher risk within the group policy.

Does group life insurance have a cash value? ›

Does Group Term Life Insurance have a cash value? No. Group Term Life Insurance does not have a cash value; however, the annual premiums are usually lower than those types of insurance with cash values.

Can you opt out of group term life insurance? ›

Some companies allow employees to opt-out of group term life insurance, others do not. Because it is offered as a no-cost benefit to the employee, it may not make sense to opt-out of the insurance.


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