Going on a much-deserved vacation is much more economical if you plan on going with friends. Similarly, you and your coworkers (or fellow association or union members) can appreciate the benefits of life insurance at lower rates with group term life insurance. If you appreciate the benefit of splitting the check at a bar while on vacation, then you’ll love group term life insurance, which is a fringe benefit shared among people in the same association or group.

Life insurance works to provide financial protection to our loved ones in the event we cannot. But finding the right policy can be an overwhelming task. With Insurify, your search for the right policy or supplemental coverage is easy. By using Insurify, you can compare quotes from top life insurance companies that best suit your budget within minutes.

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Why Should I Get Group Term Life Insurance Instead of My Own Policy?

A group life insurance policy covers numerous non-related people, while an individual life insurance policy covers one person. Because a group life insurance policy covers multiple people, the underwriting is based on the experience of the group instead of the individual. Though this is the primary difference, there are varying attributes between the two different types of policies. 

Most group policies are a form of annually renewable group term life insurance coverage. Although permanent group life insurance is available, it’s not used as often. Permanent or whole life insurance lasts for a lifetime, grows cash value, and is usually more expensive than term life insurance. 

A term life insurance policy lasts for a period of time and does not grow cash value. Because people are regularly moving in and out of the group, a group term life insurance plan is the logical choice for most groups. An individual policy revolves around your specific needs, and the type of life insurance policy you choose, term or permanent, is your determination.   

To participate in a group life insurance policy, the group must consist of 10 or more unrelated people whose purpose is other than obtaining life insurance. All insureds are under one master policy. The sponsor of the group is the policy owner and holds the master policy, while the insured receives a certificate of insurance. With an individual life insurance policy, the policy owner is typically the insured.

Group Term Life Underwriting

Because underwriting is based on the experience of the group, a medical exam is rarely required, and acceptance is guaranteed. If you have an illness, you will still receive the same life insurance benefits and premiums as your healthy coworkers. With an individual life policy, if you have an illness, you may have to pay higher premiums than healthier applicants, or you may be turned down. 

When premiums of the group term life insurance plan are paid entirely by the sponsor, the plan is noncontributory. Noncontributory plans must cover 100 percent of the group. If participants in the group policy split the premiums with the sponsor, it is a contributory plan. Members are not required to participate, but the required minimum participation is usually 75 percent. Individual policy premiums are the responsibility of the policy owner.

Group life insurance must be tailored to the advantage of the group. Underwriting classifies risk for members of the group, with the consideration that members do not choose the benefit amount. A group member in good health gets the same benefit amount as a member who may have an illness, therefore the plan stays nondiscriminatory. An individual policy’s benefit amount meets your specific needs to cover your financial obligations.

Group term life insurance policies offered to group members may also extend benefits to your spouse or domestic partner and children. To cover your loved ones with your individual life insurance policy, riders such as a children’s term rider or a family term rider must be added.

Group Life Insurance and Its Singular Provisions

Group life insurance has some of the same provisions as an individual life insurance policy, such as a 31-day grace period for premium payments and an incontestability period. But some provisions in group term life insurance are all their own. Furthermore, some individual policy exclusions do not apply to group policies, such as the hazardous occupation and hobbies exclusion.

Group term life insurance policy provisions include an entire contract provision. This provision states that only the application and the policy document establish the policy. Also, insurers include a provision stating the conditions under which they can request a participant to provide evidence of insurability

Group policies can also have a provision that converts your group term life insurance policy to an individual policy with an equal amount of coverage without evidence of insurability should you be terminated or leave your job. This means that if you are uninsurable by the time you leave your job, your converted individual policy is guaranteed. The premium may be set at the age of conversion or at the age you originally applied for the policy.

Your group term policy ends when you leave the group. With the conversion provision, you can convert your group term life insurance policy to an individual whole life policy. If your policy is portable, you can convert your group term policy to an individual term life insurance policy. Whether your policy has convertibility or portability depends on the insurer. Typically, the two modifications follow the same guidelines.

The conversion period of a group life insurance policy is within 31 days of leaving the group. You must apply for and pay the first premium of the individual policy during this time. If the insured passes away during the conversion period, the death benefit that the insured would have had under the individual policy will be paid by the group policy. This is the case regardless of whether the individual policy was applied for or the first premium paid.

The conversion provision also extends to additional insureds on your policy. The employee’s spouse or children can convert the group policy to individual policies upon the death of the insured. The insured’s spouse can convert the policy upon divorce or annulment. And a child who has reached the maximum age can convert the policy to an individual policy.

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Who Are Eligible Group Life Insurance Sponsors?

To qualify for a group term life insurance policy, your group must be formed for reasons other than buying group life insurance. The most common natural groups that purchase group term life insurance are:

  • Employer/employee groups
  • Labor unions
  • Association groups
  • Multiple employer trust (METs)

Employers

Employers are the most abundant customers of group life insurance policies. Group life insurance offered by employers is usually part of an employee benefits package. Employers are not required to offer their staff life insurance like they are with health insurance. Employees are enrolled after meeting the employer’s eligibility requirements. Typically, this is the date of annual open enrollment, when you can modify coverage.

Employer/employee group life insurance policy face amounts are generally your annual salary or increments of it. Most employer group life insurance plans are noncontributory, meaning your employer pays for the premiums, and all employees must be covered. A contributory plan, where you share the cost with your employer, is voluntary and, usually, at least 75 percent of employees must be covered.

Labor Unions

Labor unions can purchase life insurance for their members. Union-sponsored plans must meet certain restrictions; all members of the union or all members of a specific class of the union must be eligible. Premiums must be paid completely by union funds or by union funds and member funds. Traditional contributory and noncontributory rules apply.

Association Groups

Members of associations, such as independent school districts, can buy group term life insurance. A minimum of 10 people is required for the group to qualify. The association is the policy owner, and all members must be eligible. Two or more employers in the same business can form a group for their employees. Premiums may be contributory, noncontributory, or fully paid by the participant.

Multiple Employer Trusts (METs)

Some states allow two or more employers to form a trust to purchase life insurance for their employees. Contributions from the employer, employee, or both are paid into a trust, and the trust is the policyholder. A minimum of two employers and 100 employees is required to make the group.

Do I Pay the Same Premium as the Rest of the Group?

Underwriting for group life insurance policies is based on the group. Insurers anticipate a mix of healthy insureds and those who may be uninsurable. Requirements may be imposed to balance risk, such as assigning premiums based on a higher risk of the group or the sub-class. Individual members cannot be discriminated against by the insurer or the group, and groups cannot reward higher benefits to one group member. 

If your group life insurance policy is a contributory policy, your premiums are deducted from your income, and premiums are the same for all participants. If your plan is noncontributory, then your sponsor pays all premiums for the group life policy. If you would like additional coverage, such as a higher death benefit or supplemental life insurance, you are responsible for the premiums of the additional insurance.

Benefit amounts of group term life insurance plans are uniform across the group. Employer-sponsored policy benefits may be only your annual income and not enough to cover your loved onesfinancial needs should you pass away. You may have the option to increase your benefit amount or purchase supplemental life insurance, such as accidental death and dismemberment, through your group policy.

If you decide to increase the face amount of your policy or purchase supplemental life insurance, your premiums are still likely to be lower than the premiums of an individual life insurance policy. An accidental death or dismemberment policy rider can double or triple the amount of your base policy’s death benefit should you pass away due to an accident.

You can purchase supplemental insurance or increase the face value of your policy when you first enroll or during open enrollment. The open enrollment period of your policy is usually on the policy’s yearly anniversary date. If you would like to modify your policy during the open enrollment, you don’t have to provide evidence of insurability

How Does Group Term Life Insurance Affect My Taxes?

The IRS provides an exclusion for policies with a face value of $50,000 or less. Coverage in excess must be reported as taxable income.

For example, if your group term life insurance policy‘s face amount is $60,000, $10,000 must be reported as taxable income and is subject to income tax for Medicare and Social Security. Check the IRS uniform premium rate table to find out how much you could pay in taxes on your policy. 

 By using Insurify to compare quotes, you’ll save time and money on your quest for the best life insurance policy or supplemental insurance that fits your budget and satisfies your financial needs.

You determine the right amount of coverage or supplemental life insurance, and Insurify will provide you with a list of quotes for the best life insurance companies whose policies meet your needs.

FAQ: Group Term Life

Can I get a group term life insurance policy with family and friends?

To qualify for a group term life insurance policy, the group must be a natural one, such as your place of employment. The group cannot be formed only to purchase group life insurance.

Is it better to have a group policy or an individual policy?

Group term life insurance policies provide the same benefits as an individual term policy. The premiums are less expensive, and if you need more coverage than the group policy has to offer, you can purchase it through your group policy.

How much will my premium be if I convert my group policy to an individual policy?

Depending on the type of policy you have, your premiums may be based on the age at which you converted the policy or when you first applied. If your policy goes by the age at which you first applied, your premiums will be less expensive than premiums using your current age.

Conclusion

Here’s the takeaway: group term life insurance is a great benefit. Though you may have to purchase additional insurance to meet your individual needs, your premiums will likely be a whole lot less. Just like making some concessions for the friend who would rather go to the shore than the mountains, the benefits are still just as sweet.  

By using Insurify, you will know exactly what you’re getting into when you’re ready to get your life insurance policy or supplemental life insurance. Insurify will produce a list of well-known life insurance companies whose benefits you are compatible with, and you choose the right quote for your budget.   

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Updated April 7, 2021

Aissa Martell is a licensed insurance producer in the State of New York. She is a creative writer and has been freelance writing for five years. She’s happy to share her knowledge of the insurance industry and its products.