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What Is Group Term Life Insurance?

Dec 18, 2020 3 min read Eric Rosenberg

Key takeaways

  • Group term life insurance is a common workplace benefit.
  • It typically offers free or low-cost coverage based on your annual pay.
  • You usually lose coverage when you leave your job, so consider buying a policy outside work as well.


There are many ways to help protect your loved ones in case the worst should happen to you, but sometimes your options aren't so clear. If you can get life insurance through an employer or organization, you may be able to cover some of your bases without breaking your budget. Here are the basics of group term life insurance and how it may fit into your financial plan.



What's in a group?

When you buy term life insurance on your own, your coverage lasts for a set period—say, 10 or 20 years. If you should die during the term, your beneficiaries receive a "death benefit" (payout) based on the amount of the policy. (By contrast, permanent life insurance won't expire as long as you pay the premiums and offers other benefits, but it can cost a lot more than term.)

Meanwhile, group term life is a type of insurance where many people, often workers at the same company, are covered by a single contract. It's a popular employee benefit*—in 2017 more Americans had group life policies than individual ones Opens in new window. Because the risk is spread among many people, coverage can be cheaper than you can get by yourself. In fact, it usually starts out free—most employers provide coverage equal to one year's salary, no questions asked. And you typically can buy more coverage (often for your spouse too) at lower group rates. Premiums (payments) generally come directly from your paycheck.

One downside: Unlike individual "level" term insurance, whose premiums don't change, the cost of group term insurance could rise as you age.

More important: Your coverage may end if you leave your job. And while some group policies are convertible to individual insurance without a medical exam, you may want to consider buying your own policy on top of any you get through a group. (This is especially important if you have health issues or a high-risk job.) A life insurance calculator or financial professional can help you determine the right amount of coverage for your needs.

*Note that some employers and organizations offer group permanent insurance policies, which add other benefits, but group term is far more common.


How does it work?

If your employer offers group life insurance benefits, you can usually enroll when you're hired. If you don't (or you want to make changes), you generally can do so during an annual open enrollment period or after a life event such as marriage or a new baby. If you're a veteran, member of a union like the National Education Association (NEA) Opens in new window or belong to a group like AAA Opens in new window or AARP Opens in new window, look into your coverage options.

For employer plans, beyond the (usually) free coverage of a year's salary (more if you work for the federal government), you often can add extra coverage based on your pay. For example, if you earn $40,000 a year, you may be able to choose coverage in $40,000 increments (e.g., $80,000, $120,000 and so on). You might need to answer medical questions or even take an exam to buy more, but you won't be charged for the hassle.

Once you're insured, if you die while covered, your beneficiaries receive a death benefit equal to your coverage amount.

Note that if you get a policy through your employer, it may be taxable: According to the IRS Opens in new window, the first $50,000 of group term coverage isn't taxed, but premiums for coverage above $50,000 are considered taxable fringe benefits—they may face Social Security and Medicare taxes (withheld from your paycheck) and income taxes when you file your annual federal return.


Make the right choices

Because it's often more affordable than individual insurance, a group term life policy may be worth the price even if you have coverage on your own. Whatever you do, don't simply ignore an opportunity to enroll through work or an organization. It isn't a perfect solution for everyone, but consider it an option for helping protect those you care about most. Hopefully, you'll never use any life insurance, but if something does happen to you, the coverage can help maintain your family's home and lifestyle into the future.


What you can do next

Review your workplace and association benefits to see if you have group term life insurance. If not, find out when the next enrollment period (at work) begins or what's available through the organization. And do your research ahead of time. Calculate how much coverage—through work and on your own—may be right for you. If you're already covered, make sure your named beneficiaries are up to date. If you need help, talk to a financial professional.


Eric Rosenberg is a finance, travel and technology writer in Ventura, Calif. He has in-depth experience writing about banking, credit cards and investing.


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