Understanding Group Term Life Insurance

Group Term Life Insurance Explained

Definition
Group term life insurance is a form of term life insurance that covers all members of a particular group, such as all workers at a certain firm.
 Employees attend a corporate meeting.
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Group term life insurance is a form of term life insurance that covers all members of a particular group, such as all workers at a certain firm. Employers frequently offer group term life insurance as part of their employee benefit package.

Learn more about how employers offer this type of life insurance policy, how it compares to other types of policies, and whether it’s right for your needs.

Key Takeaways

  • Group term life insurance is a type of term life insurance policy that covers a group of people instead of covering an individual. 
  • A group term life insurance policy may not be enough coverage to meet your needs. You may also need an individual life insurance policy.
  • Your group term life insurance policy typically ends when you leave your job. However, you may be able to extend your coverage or convert it to an individual whole life insurance policy. 

What Is Group Term Life Insurance? 

Group term life insurance is life insurance that you get as part of your benefits package at work or through some other group such as a labor union or professional organization.

Note

Term life insurance provides basic death protection for a limited period, typically from one to 30 years. In contrast, whole life insurance is permanent insurance coverage that remains in effect throughout your lifetime and can accumulate cash value over time.

Group term life insurance is typically less expensive than an individual policy as the employer pays a portion. Some employers even pay the premium, providing this benefit free of charge to their workers. 

There may be requirements for you to join group term life coverage, such as working a certain number of hours per week or being employed for a minimum length of time. 

An employer can provide up to $50,000 of life insurance for an employee as a fringe benefit without a tax implication. But if the employer provides more than that, beneficiaries must claim the death benefit as part of the insured’s wages and pay income taxes on the amount over the limit.

How Does Group Term Life Insurance Work? 

Group life insurance covers a group of people on one insurance policy. This means it’s not customizable to your specific needs. It’s not uncommon for a basic policy to have a death benefit that is equal to about one or two times your yearly salary, or for the benefit to be a set amount for everyone in the group, such as $100,000. Some employers give you the option of signing up for additional insurance.

Note

With some group term life insurance policies, you may be able to purchase coverage for your spouse and your children. Check with your plan’s administrator for your options. 

To sign up for coverage, read your application carefully. Most basic group term life insurance contracts don’t require a medical exam, but some policies might require it.

Once approved for coverage, you’ll need to pay your monthly premium unless your employer covers it all. Then, if something happens to you and you pass away while you’re ensured, your beneficiary gets the death benefit. 

Make sure you review your insurance coverage and beneficiary regularly. This way, you know your insurance money will go to the right person when you die. 

Note

Most group term life insurance policies end when you stop working for the company. However, some companies allow you to take your coverage with you by "porting" your term policy or by converting it to a permanent policy. The advantage is that you don't have to apply for new coverage and go through an exam. However, if you can't convert to a permanent policy, your premiums will increase over time.

Pros and Cons of Group Term Life Insurance

Group life term insurance can offer a more affordable term life insurance policy than you may get on your own, but, as with any financial product, consider the pros and cons.

Pros
  • Typically less expensive

  • Generally doesn’t require a medical exam

  • Employers may cover the premium

Cons
  • Often limited amount of coverage

  • May end when you leave your job

Pros Explained

  • Typically less expensive: Group term life insurance rates are typically less than you’d pay for an individual policy. It can be a low-cost way to get life insurance. 
  • Generally doesn’t require a medical exam: Many term policies don’t require any medical screening. Instead, in most cases, every member can join regardless of their health history.
  • Employers may cover the premium: Some employers choose to pay all the premium for their employees. Others cover part of the monthly payment, which helps to lower what you owe. 

Cons Explained

  • Often limited amount of coverage: Group term life insurance typically doesn’t provide as large of a death benefit as you can get on your own. Depending on how much life insurance you need, it might be wise to purchase an individual plan as well. 
  • May end when you leave your job: Since your coverage is provided through your employer, your life insurance policy may terminate when you leave. However, you may have the option to convert it to a permanent policy or to take it with you as a renewable term policy. In the latter case, your premiums will increase each time the policy renews, so it could be more affordable to seek new coverage.

The Bottom Line

Group term life insurance is a type of coverage that provides a death benefit if the insured individual dies while the policy is in place. Since it's fairly inexpensive, it can be a good way to get life insurance for a specific time period. But, it might not be enough to meet your financial needs if you need more coverage or if you want coverage to remain in effect until your death.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Northwestern Mutual. “Group Term Life Insurance.” Accessed Feb. 1, 2022.

  2. Legal Information Institute. “Group-Term Life Insurance.” Accessed Feb. 1, 2022. 

  3. Minnesota Commerce Department. “Term vs. Permanent Life Insurance.” Accessed Feb. 1, 2022.

  4. IRS. “Group-Term Life Insurance.” Accessed Feb. 1, 2022. 

  5. Texas Department of Insurance. “Life Insurance Guide.” Accessed Feb. 1. 2022.

  6. Ohio National. “Group Life Insurance vs. Individual Life Insurance.” Accessed Feb. 1, 2022.

  7. Unum. “Group Life Insurance Policies and Coverage.” Accessed Feb. 1, 2022.

  8. Texas Department of Insurance. “Life Insurance Guide.” Accessed Feb. 1, 2022. 

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