Group Life Insurance

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    Group Life Insurance: How To Make The Most Of This Workplace Benefit

    Many employers offer company life insurance policies as a benefit for their employees. This can give you financial protection at lower rates than individual plans. But there’s a trade-off! These policies only offer basic coverage and limited terms.

    So, is basic coverage worth the cheaper price tag? Can you keep the policy even after you leave your job? And are all group life policies the same, or can you customize yours to fit your needs? In this guide, we'll answer all your questions about group life insurance coverage, and help you decide what kind of plan to get.

    What Is Group Life Insurance?

    Group life insurance is a type of life insurance where one policy provides coverage to a group of people. Usually, the person who owns the policy (“policyholder”) is an employer. The group of people covered by that policy (“insured”) is the employees. 

    This kind of insurance is typically offered as part of the employee benefits package. Group insurance costs the employee significantly less than an individual policy for the same amount of coverage. In some cases, the employer might even offer it for free.

    A group life insurance policy's master contract will be held by the employer. Employees get a certificate of coverage, which they can present as proof of insurance.

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    What Are The Different Kinds Of Group Life Insurance?

    There are two kinds of group insurance plans that your employer can offer. Here’s a quick description of these policies.

    Group Term Life Insurance

    Group term life insurance means that your life insurance is only valid for a certain period. Employers who opt for term life policies have to renew every year through an enrollment process, with most or all of the premiums paid by the employer. The average coverage for a group term life insurance policy is equal to one or two times your annual salary.

    Group Whole Life Insurance

    Unlike term life insurance which has an expiry date, whole life insurance is permanent life insurance that provides coverage for your entire lifetime. They come with higher premiums and higher death benefits for your policy's beneficiaries. This type of life insurance is less commonly provided by employers compared to term life.

    What Are The Benefits Of Getting Group Life Insurance?

    Thinking of opting into your workplace’s policy? Here are the benefits of enrolling in your employer’s group insurance.

    Group Life Insurance Is Often Offered At A Very Affordable Rate Or Even For Free

    Employees pay very little, if they pay at all. If you do have to pay premiums, these will be deducted automatically from your monthly gross earnings.

    Qualifying For Group Life Insurance Is Easier

    Unlike an individual policy, group life insurance doesn't require a medical exam. This makes it easier to qualify for coverage. For those with medical conditions, this might be one of the only ways to qualify for life insurance.

    Some Coverage Is Better Than No Coverage At All

    It may not cover all of your family’s future needs, but it’s still a great option for those who can’t afford individual policies yet. Given the affordability of group insurance, some financial protection might be worth it.

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    What Are The Disadvantages Of Group Life Insurance?

    Even if your employer is offering this as a workplace benefit, there are still some drawbacks to take into consideration. Here are some of the cons of group policies:

    Group Life Insurance Has Very Basic Coverage

    The coverage of group life insurance is only 1-2x your annual salary. This may not be enough to shoulder the financial burden that your spouse or children will have to face when you die. In this case, you might want to consider getting more coverage, which will cost you a higher premium.

    Your Employer Controls Your Grouping Insurance Policy

    You won't have a say in the terms of your policy. If your employer decides to terminate their contract with the life insurance company, your policy will end. If you leave your job, your coverage will also end. You can opt to have your group life insurance converted to an individual policy if this happens, but your premiums will likely increase.

    How Is A Group Life Insurance Premium Calculated?

    There are several factors that can affect everyone's premiums in a group policy. Here’s a breakdown of a few of them.

    The Group's Average Age

    The higher the average age of the group, the higher the premium that each employee will have to pay. An older average age means an increased chance of payout on the part of the insurance company.

    The Group's Average Health Condition

    While insurers aren't allowed to deny claims based on pre-existing medical conditions, they can charge a higher premium to groups that have more people with disabilities and illnesses. This can go both ways – if your colleagues are in relatively good health and considered more low-risk, that can drive the cost of premiums down.

    The Size Of The Insured Group

    Generally, the bigger your group, the lower your premium will be. This is because a larger group spreads out the payout costs of a few risky people to a much bigger pool of individuals. Apart from employees who opt into the group insurance plan, any family members who opt-in through them will be considered in this computation.

    Amount And Terms Of Coverage

    The greater the covered amount of the policy, the more expensive the premium. If you want additional coverage beyond your employer's chosen policy, you will have to purchase supplemental insurance. How long you’re covered also matters – term life insurance is much cheaper than whole life insurance.

    The Riskiness Of The Job

    Not all jobs have the same hazards. Office workers don't face the same risks as construction workers or factory employees. If your line of work is riskier, the premiums for your group will be higher.

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    What Is Supplemental Life Insurance?

    A supplemental life insurance policy adds coverage to an existing policy. Examples of supplemental life insurance include:

    • Extending life insurance coverage to your spouse or child
    • Policy coverage for injuries or death due to an accident
    • Additional coverage to your basic group life insurance

    When people get free or low-cost group life insurance at work, they also have the option to buy supplemental life insurance. Here are some of the benefits:

    • You can keep your coverage even if you leave your job
    • You can get specific coverage not covered in your basic plan, such as insurance for your spouse
    • Your beneficiaries can get a higher death benefit

    Take a closer look at your group life insurance policy to find out if you need supplemental life insurance. Extra coverage may cost you more now, but it could help ease financial burdens in the future.

    FAQs About Group Life Insurance

    How are my lump sum benefits from group life insurance taxed?

    It depends on whether you chose to have these benefits paid out in a lump sum or installments. The general rule is that your lump-sum benefits, received as a benefit by your beneficiaries upon your death, will be tax-free.

    If you choose to have them paid out in installments, a portion of this may be taxed. Beneficiaries should check if the sum of the installments that they receive over that period is larger than the amount they would have received in a lump sum payout. If it is larger, a portion of the total installments will be considered interest and will be subjected to ordinary income tax rates.

    To minimize the taxes on a policy's benefit, consult a financial adviser about how best to plan payouts.

    Can I change my beneficiaries for my group life insurance policy?

    Yes. Whether you're covered by a term life policy or a permanent life policy, you can change the beneficiaries at any time during your coverage period.

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    Can my group life insurance claim be denied?

    Yes. While this rarely happens, it is typically due to a disability or illness being excluded from the coverage of the policy. Group insurance doesn't require a medical exam, but it does require all employees under the policy to answer a questionnaire about their medical history. If an employee did not disclose important medical information, there is a chance that their claim could be denied.

    Missing or incorrect paperwork is another common reason for claim denials. If you failed to submit the required documents for your insurance application, the life insurance company could deny your claim. Employees need to update their employers of any material changes which could affect their policies, such as marital status and change of address.

    Can I get additional coverage for my group life insurance?

    Yes, you can. Ask your employer if the terms of your group life insurance allow you to get insured for a higher death benefit amount. Your premiums will cost more than your other co-workers’, but you will get better protection against financial problems in the future. It’s also cheaper to get more coverage on group life insurance than to get expanded coverage on individual life insurance.


    If you're covered by your company and want to learn more about your group insurance benefits, get in touch with one of our financial advisors. Whether you need help with supplemental insurance or keeping your benefits even after you leave your job, we can help.

    Contact us at Wesley Insurance to find out what you can do to improve your insurance coverage. We can help you decide the best way to provide for your family's financial future!

    Written By Cameron McDowell
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