Group Life Insurance: A Step-By-Step Guide

You will find every little detail about Group Life Insurance in this guide, so stay tuned.

There are so many people who are part of the country’s labour force. People who work day and night, cover shifts and even work overtime to make their ends meet. According to The World Data, 60% of the world’s population is the working force. 

If you’re part of the working force and earn just enough, you must be thinking about your family and their future. Is it financially secure? If you’re the only breadwinner of your family, who will uplift them when you’re gone?

A life insurance policy might be your only option. But let’s be real; insurance policies are sometimes expensive. So what if you can’t afford that either?

Then your best bet is hoping that the organization you work for, offers group life insurance.  

Many organizations offer group life insurance benefits as a perk to their employees, especially when they are promoted to a higher position. They promise their employees life insurance.

Sounds generous, doesn’t it?

But, to insure many people individually can be costly for a company. So they buy group life insurance.

But what is it and how does it work? This step-by-step guide will tell you everything you need to know!

What is Group Life Insurance?

Just how bulk buying works in the economy; with increase in quantity, the price of each product is decreased by a certain fraction. So the total becomes less costly rather as compared to the cost of buying each original product.

A group life insurance policy works on the concept of bulk buying. 

One single insurance policy covers an entire group of people. Therefore group life insurance is cheaper than the cost of getting every single person insured separately. The policyholder is NOT the insured himself (like in all other policies), but the employer or organization is. And naturally, employees only pay very less, or sometimes even nothing, for policy benefits.

How do Group Life Insurance Policies Work?

Just like other life insurance policies, a group life insurance also gives you the option of choosing your own beneficiaries. Your employer holds the master contract of the policy which means insured employees only receive a certificate proving that they are covered by the group life insurance policy.

This type of policy is liable just as long as an employee stays within the particular contract and is still working for the employer. But, under a group life insurance, employees do get an option of converting group life insurance to individual life insurance if they decide to leave their employer. However, most people don’t go for this option because group life insurance conversion charges are high and premiums may increase. 

That’s just a basic overview of group life insurance. Let’s dive into more detail.

Characteristics of a Group Life Insurance Policy

These are the different features of a group life insurance policy that differ from other types of life insurance policies:

All of the following are characteristics of a group life insurance plan except INDIVIDUAL UNDERWRITING!

  • Added perks when employees finish a certain amount of tenure in the company
  • Guaranteed death benefit to beneficiaries of the insured employee
  • Accumulated cash value (savings plan)
  • Automatic coverage- as soon as you join a company that has group life insurance policy, you’re covered by default
  • Easy payment of premiums because it is automatically deducted from your paycheck each month
  • Aren’t as expensive as compared to individual coverage policies

Does Group Life Insurance have Cash Value?

No.

A group life insurance does NOT have a cash value component- only a death benefit. This is one reason why the annual/monthly premiums are lower than policies that do have a cash value component. 

Is Group Life Insurance Taxable? 

A group life insurance is NOT taxable, but up to a certain amount. 

If you pay more than $500,000 in cost coverage, then the excess amount is applicable to tax.

Below that amount, there is no amount of tax applicable.

Group Term Life Insurance

A term life insurance is in force when a selected policyholder is insured for a specific term- usually from 10-30 years depending upon their need. This type of policy isn’t for lifetime which is why the premiums are also very affordable. A term life insurance only gives a guaranteed death benefit to beneficiaries ONLY after the policyholder dies.

But what is a group term life insurance?

A group term life insurance is actually very common in organizations. The term here is only subject to until the policy is terminated or if a person leaves the said organization- THAT is when the term ends. Group life insurance is typically issued as a level term insurance.

What is Group Basic Life Insurance?

It is renewed yearly and the employer pays for premiums. The amount of coverage is usually the insured person’s annual salary, or sometimes a double of it. This basic coverage is known as group basic life insurance.

Group life insurance policies are generally written as term insurance in the contract and are offered to employees who meet the eligibility criteria of the policy. It is usually given to permanent employees, and not the ones still working on probation. 

Group Whole Life Insurance

A group whole life insurance policy covers the whole life of an employee, and the policy ends when the said policyholder dies. Beneficiaries will receive a death payout as per the policy.

There are certain requirements in a group whole life policy, like passing a criteria. The number of years worked in an organization helps in qualifying the person who is now allowed to receive group life insurance benefits. Premiums are usually paid by automatically cutting the amount from the employee’s paycheck each month. 

Group Universal Life Policy

What is Group Universal Life Insurance?

A group universal life policy- also referred to as GULP is a type of permanent life insurance where a group of employees are all covered under one policy- for their whole life.

This type of policy also offers a savings component that builds cash value as the policy matures. Here, employees have an option to either pay the cost of policy premiums or add to their cash value, which can later be accessed through loans and withdrawals. A minimum interest rate is liable on the growth of cash value which matures over time.

It is obviously recommended for employees to let the cash value grow for over 10-15 years before withdrawing the money so that they can enjoy the fruit of a lump sum amount during their life. 

Benefits of Group Universal Life Insurance Policy

  • Portable coverage
  • Premium is completely waived off
  • Additional benefits

One major benefit of a GULP is portable coverage! Employees can still continue to be covered under the policy even after they retire or change jobs. This is one feature that distinguishes GULP from a group life insurance policy. Moreover, if an employee becomes disabled due to any unforeseen circumstances and is not able to work, there is a complete premium waiver. And if they are diagnosed with a terminal illness, a GULP policy gives them additional benefits. 

Along with having a guaranteed death benefit given to beneficiaries, above mentioned are some of the living benefits that an employee may receive. 

If your employer is giving you the option of a GULP, take it! Think about all the long term benefits, and that too on very low premiums!

Servicemembers Group Life Insurance

Anyone who is serving in the armed forces (military, navy, task force, coast guard, marine corps) are called servicemembers or servicemen.

Insurance companies have a specific quota for such people known as the servicemen’s group life insurance (SGLI). These are policies specifically designed for servicemembers that allow them to be insured for their time in the forces. 

The maximum amount servicemembers group life insurance coverage is available up to $400,000 and allows an incremental charge of upto $50,000 as well which eventually leads up to the maximum limit. There are also further benefits attached with this type of policy such as an extension of 120 days after you leave the military or extension of two years free coverage if you’re disabled due to serving in the forces.

Servicemen Group Life Insurance Coverage Rates

It is important to still be serving in the force for you to be eligible for and SGLI. If you’re under SGLI protection, your monthly premium will be deducted from your base pay. And an additional $1 as well on the account of Traumatic Injury Protection (TSGLI). 

These are some sample quotes extracted online, courtesy of the US Department of Veteran Affairs.

Coverage amount Monthly premium rate TSGLI premium Total monthly premium deduction
$400,000 $24.00 $1.00 $25.00
$350,000 $21.00 $1.00 $22.00
$300,000 $18.00 $1.00 $19.00
$250,000 $15.00 $1.00 $16.00
$200,000 $12.00 $1.00 $13.00
$150,000 $9.00 $1.00 $10.00
$100,000 $6.00 $1.00 $7.00
$50,000 $3.00 $1.00 $4.00

Veterans Group Life Insurance

A veteran is a person who has been part of the military or force and is NO LONGER a part of it. Just like there are designated plans for servicemen, there are insurance plans for veterans as well. 

A veterans group life insurance program (VGLI) is an insurance policy designed to give lifelong protection to veterans and former servicemen for as long as they promptly pay their premiums. When you leave the military, you can sign up for a VGLI based on the coverage you had under the SGLI protection program. 

You’re eligible to apply for VGLI within one year and 120 days after you leave the military. If you apply within 240 days, you wouldn’t have to give a medical exam, but any time after that you will have to prove you’re in good shape and health through a medical assessment. 

This is a great opportunity for veterans who wouldn’t be able to qualify on a regular life insurance policy because of their age or health, and a VGLI protection policy is relatively cheaper as well depending upon the coverage amount you aim for.

VGLI programs are managed under the Prudential Group Life Insurance Company of the United States. 

Veterans Group Life Insurance Quotes

Here is a table of sample VGLI rates that a person may be expected to pay, depending upon their age and maximum cost of coverage of $400,000.   

Age Monthly Premium
29 and below $32
30-34 $40
35-39 $52
40-44 $68
45-49 $88
50-54 $144
55-59 $268
60-64 $432
65-69 $600
70-74 $920
75 and above $1,840

These are sample quotes extracted online, courtesy of The US Department of Veteran Affairs.

Of course, these monthly rates are very high because it is for the maximum coverage of $400,000. But the premiums are very low for low cost of coverage as well. You can refer to the link above for rates on other options of coverage being offered. 

Federal Employees Group Life Insurance

Any person employed within the government is considered a federal employee and there are insurance plans that cover them. 

A federal employee group life insurance plan (FEGLI) covers government employees at group rates through payroll deductions. These are managed by a particular federal agency and the death benefit is guaranteed which the beneficiaries of an employee may receive upon their death. 

If you leave the government, FEGLI is automatically terminated, however you still do receive an additional free coverage of up to 31 days after you leave. 

There are two types of coverage options that a federal employee may receive under this particular protection plan:

Basic: For a basic coverage, you pay $0.15 bi-weekly on each of your $1000 coverage. And the remaining 1/3rd amount is paid by the federal government.

Optional: Here, the employee has to pay the whole cost of coverage through premiums, which are also likely to increase after every five years of the policy. This cost varies based on your age, health and your salary. 

The office of Federal Employees Group Life Insurance is meant to file people for FEGLI and manage their insurance policies. 

Group Life Insurance Companies

There are many companies that offer a wide range of group life insurance companies to employers. These offer for a group of employees to be covered under one policy which is often relatively reasonable for employers to opt for. 

Here is a list of the best group life insurance companies that you should definitely opt for if you’re looking for a suitable plan for your employees:

  1. Lincoln Financial Group Life Insurance
  2. National Life Group Insurance
  3. Metlife Group Life Insurance
  4. Cuna Mutual Group Life Insurance
  5. Unum Group Life Insurance
  6. Principal Financial Group Life Insurance
  7. Cigna Group Life Insurance
  8. The Hartford Group Life Insurance
  9. Aetna Group Life Insurance

The Final Word

This step-by-step guide tells you everything you need to know about group life insurance and under what circumstances a person might be able to qualify.

Like i mentioned above, if your company offers you a group life insurance, TAKE IT! Along with paying very low premiums that are automatically deducted from your paycheck- meaning you don’t have to go through the hassle of paying each month- your family also gets an added death benefit!

For employers too this is a reasonable option because it is better and cheaper to cover a group of employees under one policy!

Nabeel Ahmad

Nabeel Ahmad

Nabeel Ahmad is the founder and editor-in-chief of Insurance Noon. Apart from Insurance Noon, he is a serial entrepreneur, and has founded multiple successful companies in different industries.

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