Many employers provide a small amount of free life insurance as part of their benefits package, with the option for employees to purchase additional coverage at their own expense. But what is group life insurance, and how does it differ from other types of life insurance? What coverage does it provide, and do you need more?
Whether you are starting a new job or completing your annual enrollment paperwork, we at the Guides Home Team are here to help. We did a deep dive into group life insurance and compiled all the information we gathered into this helpful guide. Below, you’ll learn how group life insurance works, how to increase the coverage and what happens when you leave your job.
What Is Employee Group Life Insurance?
Your new employer informs you that one of the fringe benefits they offer is life insurance. What they might neglect to mention is that they offer what’s known as “group life insurance,” which differs slightly from other customizable policies.
Group life insurance is like a pooled insurance policy. Your employer (or union, guild, etc.) negotiates with an insurance company to find a policy that covers all employees (you included). If you pass away, the group life insurance policy will pay a sum to your beneficiaries – typically the equivalent of one- or two-years’ salary.
In some cases, the employer really does pay out-of-pocket for the perk. In other cases, an employer might deduct the premium costs from your regular pay.
The Advantages and Disadvantages of Employee Group Life Insurance
Is your group life insurance enough? Is it a welcome fringe benefit or an unnecessary responsibility? To help you grapple with the big questions, let’s take a quick look at a few benefits and shortcomings of employee group life insurance.
Pros:
- For people who hadn’t considered life insurance in the first place, employee group life insurance falls squarely in the “better than nothing” category.
- If your employee fully covers group life insurance (i.e., if they do not deduct the insurance premiums from your monthly salary), it’s a fantastic professional perk.
- Employee group life insurance represents a positive first step toward confident coverage. Because you are already covered (however minimally), you need only add a small, affordable policy to round out your coverage.
Cons:
- Group life insurance coverage tends to be scant – usually around double your annual salary or less. While the minimal coverage will undoubtedly help your beneficiaries through the challenging immediate aftermath, it may not be enough to establish them on firm financial footing in your absence.
- Employee group life insurance is inflexible, one-size-fits-all. It won’t necessarily reflect your unique situation, lifestyle and needs.
- If your employer deducts premiums from your monthly paycheck, you may wonder if that money could be better spent on a personalized, robust life insurance policy.
- If you’re let go from your position, or choose to move to another organization that doesn’t offer life insurance, you will lose coverage.
Features of the Group Life Insurance Policies
A group life insurance policy essentially provides affordable and efficient life insurance protection to the employees working within an organization. Some of the impotant features of these group life insurance policies include –
1. Insurance Coverage for Large Group of People
a group life insurance policy provides life cover protection to multiple individuals under single or master contract policy. The insurance company does not have to go through the tedious process of filling out applications or conduct medical tests for each applicant. Instead, the employer becomes the applicant and also the master policyholder, thus choosing the policy benefits and completing the formalities of buying the group life insurance policy
2. Affordable Life Cover
Affordability is one of the significant features of group life insurance policies. Both the employers and the employees usually share the cost of availing of the life insurance benefit, making them highly affordable for all concerned individuals. As part of the premium contribution, the employer may decide to deduct a small part of its salary.
Working of a Group Life Insurance Policy
The working of group life insurance policy is described in the following flowchart –
- A master group insurance policy is issued to a group administrator, after an initial payment of payment
- The premium payment made initially covers all life insured members under the group life insurance policy for one year from the date of the commencement of the group policy
- The premium payment made initially covers all life insured members under the group life insurance policy for one year from the date of the commencement of the group policy
- The members of the group get an option to select the sum assured – either as a lump sum amount payout or be linked to a salary or loan account
- The group life insurance policies are annually renewable
- The premium payable under group life insurance policies is based on the differences in the age allocation and size of the concerned age group
The Bottom Line
Group life insurance has become an increasingly common benefit offered by employers. It may also be offered to members of a professional organization, group or club. In any case, group life insurance provides affordable coverage that is guaranteed and tax-free up to a certain amount.
Basic coverage through a group life insurance policy may be limited. If your employer or organization does not provide adequate coverage, consider adding supplemental life insurance to ensure your loved ones receive the amount they need.
