Group term life insurance at work: What you should knowHow employer-provided group term life insurance worksEmployer-provided life insurance has become increasingly important in recent years. While Americans have traditionally owned more individual life insurance than workplace coverage, research conducted by the Life Insurance Research and Marketing Association (LIMRA) found that the opposite has become true – more Americans now have workplace coverage.2 Moreover, research from Guardian has found that 57% of those with life insurance obtain it exclusively from their workplace.3 Show
When you get group term coverage, it's important to know that the protection provided isn't permanent. Like all term life insurance, it only provides a death benefit for a specific period of time. While some term policies can last as long as 30 years, group term coverage from your employer is typically "yearly renewable." In other words, the policy only lasts for one year but renews if you are still with your employer next year. Unlike permanent life insurance, there's no cash value component to the policy – it's designed purely to give your beneficiaries a payout if you die during the term. Many employers provide two kinds of group term life to employees: basic and supplemental. Basic coverage is paid for by the employer, but it may be limited. It could be a specific amount (for example, $10,000) or tied to earnings (for example, 1X or 2X salary). Since the basic amount may not provide enough protection, many companies give employees the option to purchase a supplemental term life insurance policy on a voluntary basis. Since employers buy for many employees at once, these group policies can offer a number of advantages compared to a life insurance policy purchased by an individual:
The advantages of group term life insurance are easy to understand – especially if your employer provides basic coverage. However, before signing up for supplemental life you should find out a few things. You'll be able to get most of the information you need on your company's employee website, in your benefits materials, or by talking to an HR manager. PortabilityPortability means you can take your policy with you – and still enjoy the benefits of group life insurance coverage – if you leave your employer. Employer-paid life insurance may or may not be portable, but supplemental policies are usually portable. While non-portable insurance isn't necessarily a deal-breaker, you need to remember that you can only count on being covered for as long as you stay at your company. TaxesYour employer is allowed to provide you with up to $50,000 of basic group term life income tax-free, meaning you don't owe taxes on the premium amount, and your beneficiaries won't pay taxes on the death benefit. However, premiums for any life insurance coverage over $50,000 are considered a taxable benefit and reported on your W-2 as "imputed income." This isn't necessarily a bad thing: since you're effectively paying taxes on the premiums, any death benefit will be paid to your heirs without being income-taxed. PricingBasic employer-paid coverage is typically the most affordable: you pay nothing other than taxes after a certain point. And while you have to pay for supplemental group life coverage, it typically features attractive rates, especially for younger policyholders. However, rates increase with age, often in 5-year intervals. For example, rates may be the same per $1,000 of coverage for every employee less than age 30, then go up a bit for ages 30 - 34, and so forth. If you're not sure about the rates you're getting at work, you can easily get term life insurance quotes online for a quick comparison. EligibilityYou may be subject to certain eligibility requirements – such as a minimum number of work hours per week – before you qualify for basic coverage. However, once you meet the requirement, signup is typically automatic. Supplemental group term is a different story: signup isn't automatic because you have to choose an amount of coverage (see below). Companies set different rules, but if you don't opt for coverage when you're first hired, you'll typically have to wait until open enrollment sign up or add coverage. Many plans will also allow you to change coverage after certain life events, such as marriage or the birth of a child. Finally, while acceptance is usually automatic up to a certain amount, if you opt for a higher level of coverage, there may be underwriting: the insurance company will ask questions about your health and lifestyle habits and may require a medical exam. Depending on the results, the insurer may not offer coverage (or limit you to the automatic acceptance level). How much coverage do you need?Life insurance professionals will commonly recommend having anywhere from 5x to 20x your salary in life insurance coverage. If you make $75,000 a year, that's a death benefit between $375,000 and $1,500,000. Why such an enormous range? There are many things to consider when determining how much life insurance you actually need. For example:
If you have a family, you probably want to help cover the extra costs they will face in your absence, especially while your children are still at home. The more dependents you have – and the younger they are – the more life insurance you may need. There are a few general rules that can help you start figuring out your life insurance need: Human Life ValueSome financial representatives calculate the amount you need using the Human Life Value philosophy, which is your lifetime income potential: what you’re earning now, and what you expect to earn in the future. In its simplest form, the philosophy suggests that you multiply your income by a variable based on factors such as age, occupation, projected working years, and current benefits. As with every individual, the amount of recommended insurance you purchase depends on many factors. A simple way to get that number, however, is to multiply your salary times 30 if you are between the ages of 18 and 40. The calculation changes based on your age group, so please refer to the chart:
Any of those methods are a good start, but there are more detailed online life insurance calculators that can help you arrive at a more accurate number. Other life insurance options to considerGroup term life insurance through work can be a valuable choice for all the reasons noted: it's easy to get, easy to pay for, and you'll enjoy favorable group rates. However, many companies don't offer life insurance benefits – and even if they do, the total coverage available (even with supplemental insurance) may not be enough for your needs. Fortunately, there are many other coverage options available. Getting life insurance as an individualTerm life insurance is very easy to shop for and get on your own. Many insurance companies, including Guardian, make it simple to compare rates by giving you an instant online term life quote. Most of the quotes you'll see are for level term life. These policies are typically offered with 10, 15, 20, or 30-year terms, and unlike yearly renewable term, premiums stay the same for the length of the policy. Those premiums may not be much higher than with a group term life plan if you're healthy. And coverage isn't dependent on your company or employment status – as long as you keep paying premiums, your policy will remain in force until the end of the term. An individual policy also gives you more options, starting with the fact that you don't have to get term coverage – you can opt for whole life insurance or universal life insurance. These policies are designed to provide permanent, life-long protection that also builds cash value4. And no matter which type of individual policy you choose, most insurance companies will also let you tailor individual policies with riders (optional provisions) that can provide valuable added benefits5. For example, many term life policies offer a convertibility rider that lets you change over to a permanent policy without getting a new medical exam. Permanent life policies are even more customizable. If you decide to get an individual policy, it makes sense to talk things over with an experienced professional– like a Guardian representative – who can provide a more personalized assessment of your needs and tell you about all your coverage options. And since you'll have a choice of insurance companies, make sure to look for two things:
Frequently asked questions about group term life insuranceHow does group term life insurance work?This is a term life insurance policy that you get as part of a group – typically through work. You can also get it is as part of a professional organization or member group. Because you're one of many people buying coverage together, the rates are typically lower than they would be for the same amount of coverage purchased as an individual. These types of policies often have automatic or simplified acceptance up to a certain amount, so they can be easier to qualify for without the need for a medical exam. Is group term life insurance a good idea?Group life insurance can be an affordable coverage option that's also easy to get, but you should also be aware of the limitations. For one, it's term coverage that is not permanent and doesn't build cash value. Secondly, if you leave the group or company you get it from, you could lose coverage if the policy isn't portable. Finally, the amount offered may be lower than you could get with an individual policy. What is the difference between term life insurance and group life insurance?"Term" and "group" refer to different aspects of a policy. A term policy is one of two basic life insurance types: life-long permanent coverage is the other. Separately, there are two basic ways to buy life insurance: individually or as part of a group. Most group life policies are actually a form of term coverage. Does group term life insurance have a cash value?No. Because it is a term life policy, there is no cash value. What is basic life cover?Basic life insurance is life insurance coverage provided for free or at a low cost by your employer, equal to your annual base pay income. As a low coverage, often free life insurance option, basic employee life insurance is best for single people or those who can cover their funeral and other final expenses.
What is group term life insurance coverage?Group term life insurance is term life insurance offered to all members of a certain group, such as all the employees at a company. The insurance is provided at a group rate, which is typically cheaper than purchasing the same coverage individually.
What is the needs approach in life insurance?The needs approach to life insurance planning is used to estimate the amount of insurance coverage an individual needs. The needs approach considers the amount of money needed to cover burial expenses as well as debts and obligations such as mortgages or college expenses.
Which of the following types of policies pays a benefit if the insured goes blind?Accidental Death and Dismemberment Insurance. Also known as AD&D, this type of insurance pays out if the insured dies, becomes blind or is dismembered (loses a limb) in a covered accident.
|