Group Life Insurance Policy Explained

Group life insurance is a contract that provides coverage to a group of people, typically these are the employees of the company. In that case, the employer is the owner of the policy, which covers the employees. If you pass away while the group insurance covers you, then your beneficiaries will receive a pay payout.

Generally, employers providing a group insurance policy are the most common types of it. However, other organizations such as churches can offer to their members.

Calculating Group Life Insurance

There are several different formulas used to calculate group life insurance benefits. Particularly, here are the most common types:

  • Fixed multiple-of-earnings benefit plans. These kind of plans tie your death benefit amount to a multiple of your wages, such as two times your annual salary. Since the payout depends on your salary, the level of coverage rises as your income increases.
  • Variable multiple-of-earnings benefit plans. These plans benefits are based on multiples of your salary at certain thresholds.
  • Flat-dollar-amount benefit plans. These plans pay the same amount to all employees at a fixed dollar amounts
  • Variable-dollar-amount benefit plans. On the other hand, variable-dollar-amount plan payouts can vary based on your earnings and length of service.
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Requirements for Group Life Insurance

To qualify for group life insurance, you must usually 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.

Group Life Insurance Benefits

Businesses offer the coverage as a way to help attract and retain talent. And for struggling families, it can be a welcome safety net. However, it is often not enough on its own.

Here are the benefits, these policies are:

  • Generally less expensive than individual life insurance as your employer pays all or most of the cost.
  • Easier to qualify for as it requires no medical exam unless you want to buy extra.
  • Easy to get because you can apply during employee onboarding or open enrollment
  • Open to including a spouse and/or dependent under the coverage.
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However, there are some disadvantages:

  • If you leave your job, then you lose coverage. That is unless the policy is “portable” meaning you can continue to pay for the life insurance policy yourself after you leave the job.
  • The death benefit is usually lower than that of an individual policy.
  • Most of these policies don’t have cash value, that means you cannot borrow against it.

Group Life Insurance Cost

Generally, payments for group life insurance often require the employer to make payments in full or partially. If you pay a portion, then you may have deductions from your paycheck.

Your premium can depend on factors such as your age, salary and whether you smoke. Furthermore, your employer may offer different levels of coverage at different price points. So you can choose what coverage you want after considering your needs and budget.

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However, costs may also vary depending on your employer, the insurance company and the characteristics of the group such as the average age of employees.

Particularly, the average cost of group life insurance that an employer purchases is typically low.