Group Term Life

The most common form of group life insurance is group term life. This is typically provided to the employees by the employer in the form of a 1-year annually renewable term insurance policy. When the policy is up for renewal, both the insurance company and the employer can determine whether to continue. Rates can also increase upon policy renewal. Costs of the policy are mostly or totally paid for by the employer. A typical coverage amount for group term life policies is equal to 1 or 2 times an employee’s annual salary. Often, additional coverage in larger amounts than the master contract can be purchased by the employee via payroll deductions.

Group term life itself has three types:

• Basic group term life—This is the most typical coverage, providing basic coverage and often paid for by the employer. The premiums (up to $50,000) paid for by the employer are considered as an employee income tax-free benefit.
• Supplemental group term life—Often offered by employers in conjunction with a basic group term life policy, this type of coverage provides the flexibility for the employee to purchase additional amounts of coverage. The employee chooses the type and amount of coverage to suit personal needs and circumstances and pays the cost for the premiums.
• Portable term life—Employees who lose the employer’s group eligibility (they either leave the group or retire) can take this coverage with them to continue their insurance protection generally until they reach age 70. They make their payments directly to the insurer, many times through electronic funds transfers.