What is group life insurance?

As employees and members of groups and organizations, you may be offered group and supplemental life insurance from your place of employment or the organization that you have joined. Sometimes, an employer will offer a certain amount of group life insurance coverage to its employees at no cost. Even if you have a sufficient amount of coverage through other life insurance plans, it is generally a good idea to take advantage of this free coverage.

Another type of life insurance that is offered through organizations and employers is supplemental life insurance coverage. This additional coverage is generally a good plan if you have pre-existing conditions or cannot purchase an individual term life insurance policy on your own. If you are healthy and qualify for reasonable rates through other means, buying a supplemental life insurance plan is often not recommended.

Group life insurance is insurance coverage that is provided to a larger group of people. As a policyholder you still get to choose your beneficiary, and the benefits are provided in the same manner as other life insurance policies. Some examples of groups that may offer this type of coverage include the AARP, Veteran Affairs, places of religion, and employers.

Group life insurance is generally provided as a multiple of salary. There are two types of group life insurance coverages, basic and supplemental. The amount of life insurance coverage available to you as an employee free of charge is called basic group life insurance. A supplemental group life insurance policy is the additional coverage beyond that that you choose to purchase through your employer. It is highly recommended to accept any amount of basic group life insurance, as it is offered as financial protection for your loved ones with no need for paying premiums.

Group life insurance is purchased by employers or organizations, which are the policyholders of the insurance. This means that if you switch jobs or stop paying organization dues, you will also lose the access that you have to the life insurance coverage provided.

Also, basic group life insurance is guaranteed, meaning that if you are unhealthy or are a smoker, you cannot be denied the coverage. This can be a huge benefit for people who are older or have trouble covering the costs of insurance from other sources. Prices for unhealthy people and people that are at risk are generally a lot higher than the costs that more healthy people pay.

What Is Supplemental Life Insurance?

Supplemental life insurance is voluntary insurance that policyholders can purchase on top of the basic group life insurance offered by their employer. The payments for this type of coverage our most often deducted from your paycheck. In some cases, employees can purchase supplemental life insurance not only for themselves, but also for their spouse and their children.

The decision to purchase supplemental life insurance in this fashion is somewhat dependent on your health. It is likely that you will get better rates buying an individual life insurance policy, which has more features if you are healthy or young. If you have had trouble being approved for an individual policy, purchasing supplemental life insurance from your group can be a good idea.

The premiums for supplemental life insurance are higher in part because the insurance provider does not receive as much information about your health. In some cases, they may require evidence of insurability, particularly if you're looking to purchase a large amount of coverage. Supplemental life insurance it is not guaranteed issue insurance like basic group life insurance. You may need to submit to a medical exam, a medical record review, or answer health questions for the insurance provider before being approved.

Types Of Group Life Insurance Policies

Most often, group life insurance is provided as term life insurance that is renewable annually. This means your life insurance coverage, if it is group coverage, will likely expire within a year of you leaving the providing employer or organization. Some insurers offer other types of group life insurance for companies. Options include group universal life insurance, whole life insurance, or accidental death and dismemberment insurance.

Insurance policies like supplemental coverage and permanent policies are sometimes able to be continued even if you leave the organization or company providing the plan. In these cases, policyholders could be offered the opportunity to convert their group term life insurance to an individual policy that has the same terms. 

Tax Implications Of Group Term Life Insurance

Taxes on group life insurance have some of the same protections that individual life insurance policies have. Your beneficiaries will most often not have to pay income taxes on the insurance policy’s benefit after you pass away. For group and supplemental life insurance policies, you may have to pay taxes on the value. Sometimes the value can be considered part of your income.

For people with less than $50,000 of group and supplemental term life insurance through their employers, they do not have to pay associated income taxes. For group term coverage above this amount, it is most often assigned a fair market value by the IRS. If your premiums are less than this value, the difference is considered part of your income and is subject to taxation.

Final Notes

There is a large amount of information around both life insurance and the related taxes. For this reason, it can be a good idea to involve a professional in the decision-making process surrounding which plans to get. Agents at General Insurance are knowledgeable and here to assist.