Group life insurance
Group life insurance is a type of term insurance where one contract is issued to cover several people. The most common combination is the company. Where the contract is issued to the employer who then offers coverage as a benefit to employees. Many employers provide, at no cost, a base amount for group coverage as well as the ability to purchase supplemental coverage and coverage for employees’ spouses and children.
How does group life insurance work?
About 80% of companies offer company-paid group life insurance as a benefit, the Society for Human Resource Management reports. Group life insurance policies are generally written as term insurance and offered to employees. Who meet eligibility requirements. Such as being a permanent employee or 30 days post-hire. Group life insurance coverage can be modified for eligible life events or during the open enrollment period.
The standard amount of coverage usually equals the covered employee’s annual salary. Employers usually pay most or all of the premiums for basic coverage. Additional amounts, usually in multiples of the employee’s annual salary, are typically offered in exchange for an additional premium paid by the employee.
Advantages and disadvantages of group life insurance
Group period coverage is generally inexpensive, especially for young adults, and participants may not be required to go through underwriting as all eligible employees are automatically covered. However, unlike individual insurance plans, which usually charge a price for 20 to 30 years, most group plans have price ranges in which the cost of insurance automatically rises in increments, for example, at age 30, 35, 40, etc. The premiums for each rate range are specified in the plan document.
While it is inexpensive, in many cases. The amount of coverage offered by group life insurance may not be sufficient and should be combined with an individual plan. Employers or association groups that provide insurance often limit the total coverage available to employees or members based on things such as tenure, base salary, number of dependents, and employment statuses such as full-time, associate or executive, with the amount of coverage available varying by group. Most commonly, employers offer employee salary multiples or fixed amounts. Such as $20,000 or $50,000. Other forms of compensation, such as bonuses, commission, reimbursement, or incentives that are reported as income – eg, automatic repayment or a restricted stock bonus, may be excluded.
Another reason group insurance should be considered supplemental is that it is conditional on employment. Coverage ends automatically when the individual’s employment ends, and at this point, it may be more difficult (or more expensive) to obtain individual insurance. Some insurance companies offer an option to continue coverage by converting a group term into a single permanent policy. Transfer options vary, may not be automatic, and may require subscription. Thus, an individual can be rated and offered a policy at a much higher premium. Also, the policies available on conversion may be limited and not always the most competitive product.
Group life insurance requirements
Typically all employees are automatically enrolled in basic coverage once eligibility requirements are met. Requirements vary and can also include working a certain number of hours per week or a certain amount of time as an employee. Availability of coverage of the supplemental group term varies. In some plans, enrollment is only available when the individual is initially employed or upon a qualifying life event. Such as the birth of a child. In other plans, supplemental coverage for group periods may be added during open enrollment periods.
Supplemental coverage may require underwriting. It is usually a simplified underwriting process where the insurance applicant answers a few questions to determine eligibility rather than having to go through a physical exam. Then the carrier decides whether or not to offer additional coverage.
Special Considerations
Employers are allowed to provide employees with $50,000 of tax-free group life insurance coverage as a benefit. Any coverage amount over $50,000 paid by the employer must be recognized as a taxable benefit and included on the employee’s W-2.2
If the employer discriminates, and is permitted. By offering different amounts of coverage to select groups of employees. The first $50,000 coverage may become a taxable benefit for certain employees such as corporate officials, highly paid individuals, or landlords at a rate 5% or greater stake in the business.
Even if the term policy is appropriate for your current circumstances. It is worth comparing your employer’s offer to other companies’ plans to ensure you get the best.